By WealthKit · 6 min read · Published Jul 2026 · Updated Jul 2026
If you invest a single lump sum and check its value years later, CAGR (Compound Annual Growth Rate) tells you the annualised return, cleanly. The moment you invest through a SIP — many separate instalments, each at a different date and often a different amount — CAGR stops being a meaningful number, and this trips up more investors than almost any other calculation in personal finance.
CAGR assumes one thing: a single amount invested on a single date, growing to a final value on a single later date. Its formula is built entirely around that one cash flow in, one cash flow out, structure.
A SIP breaks that assumption completely. If you've invested ₹10,000 every month for three years, you don't have one investment date — you have 36 of them, each instalment growing for a different length of time (your first instalment has had three full years to compound, your last instalment has had almost none). There is no single "invested amount" and "invested date" to plug into a CAGR formula. Trying to force it — say, by just averaging your instalments, or comparing your total invested amount to the final value using the SIP's start date — produces a number that looks plausible but is quietly wrong, usually by understating your actual annualised return.
XIRR (Extended Internal Rate of Return) is built specifically to handle multiple cash flows on multiple, irregularly-spaced dates. Instead of assuming one investment date, it takes every single instalment — its exact amount and its exact date — plus the final value on the date you're measuring, and solves for the single annualised rate of return that makes all of those cash flows mathematically consistent with each other.
In practice this means XIRR correctly gives more "weight" to your earlier instalments (which have had longer to compound) and less weight to your most recent ones (which have barely had time to grow at all) — which is exactly how a SIP's actual return behaves, and exactly what a simple CAGR calculation cannot capture.
XIRR isn't limited to regular monthly SIPs — it works for ANY series of irregular cash flows: a SIP where you occasionally skipped a month, a SIP where you also made a few lump-sum top-ups, or even a portfolio where you've made withdrawals along the way. As long as you know every cash flow's date and amount, XIRR gives you one honest annualised return number that accounts for all of it.
This is also why fund fact sheets and apps almost always quote XIRR — not CAGR — when showing your personal SIP returns, even though the same fund's own long-term track record (a single NAV series over time) is usually still shown as CAGR. Both numbers are correct; they're just answering different questions.
Calculating XIRR by hand involves solving an equation that generally has no simple closed-form solution — it requires iterative numerical methods, which is exactly the kind of thing a calculator exists for. WealthKit's XIRR Calculator takes each of your instalment dates and amounts plus your current value, and returns your true annualised return instantly, without needing to build a cash-flow model in a spreadsheet yourself.
Put this into practice
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