When you check your mutual fund returns, you often see terms like CAGR and XIRR.
They look technical—but understanding them is crucial to knowing how your money is really growing.
Let’s decode both, in simple terms, with Vizzve Finance as your guide.
🧮 What Is CAGR?
CAGR (Compound Annual Growth Rate) is the average annual return over a specific time period, assuming your investment grew steadily each year.
🔍 Formula:
CAGR=(Final ValueInitial Investment)1n−1CAGR = \left( \frac{\text{Final Value}}{\text{Initial Investment}} \right)^{\frac{1}{n}} - 1CAGR=(Initial InvestmentFinal Value)n1−1
Where n is the number of years.
💡 Use CAGR When:
You made a lump sum investment
You want to understand annualized growth
Example:
You invest ₹1,00,000 in 2020, and it grows to ₹1,44,000 by 2023.
CAGR = 13% per annum
📉 Limitation of CAGR
CAGR doesn’t account for multiple transactions.
If you invested at different times or amounts (like SIPs), CAGR won't give you the full picture.
🧾 What Is XIRR?
XIRR (Extended Internal Rate of Return) calculates returns when cash flows happen at irregular intervals—perfect for SIPs, withdrawals, bonuses, etc.
💡 Use XIRR When:
You invest via SIPs
You make multiple contributions or partial withdrawals
You want a realistic view of actual returns
XIRR tells you:
“How much did I really earn based on when and how much I invested?”
🆚 CAGR vs XIRR: Side-by-Side
| Metric | Best Used For | Reflects Real Returns? | Accounts for SIPs/Withdrawals? |
|---|---|---|---|
| CAGR | Lump sum | Partially | ❌ |
| XIRR | SIP & lumpsum | ✅ Yes | ✅ Yes |
📲 Where Do I Find These?
Most apps and platforms (including Vizzve Finance) show:
CAGR for one-time investments
XIRR for SIP-based portfolios
Both, if hybrid investments were made
🔍 Why This Matters for You
Imagine this:
You invest ₹5,000/month for 3 years.
Your final value is ₹2.1 lakhs.
CAGR may show 12%
But XIRR shows 10.5%
Because your ₹5,000 investments had different compounding windows.
XIRR is more realistic, especially for long-term SIP investors.
🧠 Vizzve Tips to Read Returns Smartly
Check XIRR before making redemption decisions
Don't compare funds using just CAGR—check your personal XIRR
Use CAGR only when investments are one-time and untouched
📈 Bonus: Other Return Metrics You May See
Absolute Return – Simple increase in %
Annualized Return – Normalized yearly return
Rolling Return – Average return over specific periods
Use XIRR for personal tracking.
Use CAGR for comparing fund performance online.
💬 FAQs
Q1: Is XIRR better than CAGR?
Yes, for SIP or staggered investments, XIRR is more accurate.
Q2: Can two people in the same fund have different returns?
Yes! If they invested at different times, their XIRRs will differ even if CAGR is the same.
Q3: Do mutual fund apps like Vizzve show both?
Yes. Vizzve displays CAGR and XIRR side-by-side based on how you invested.
Published on : 17th July
Published by : SMITA
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