Over the past few years, investing in mutual funds through a systematic investment plan (SIP) has gained significant traction. Although investing through an SIP is easy, calculating the returns on an SIP investment can prove to be challenging, mainly when irregular investments or withdrawals occur. However, one can use an XIRR calculator online to calculate the returns on each installment.
The extended internal rate of return (XIRR) is an important metric as it helps investors calculate the returns in an investment where multiple transactions take place.
An XIRR is a single rate of return that is applied on every single investment to receive the current value of your investment. The XIRR calculator for SIP is useful since, at times, investments may be irregular, or an investor may withdraw funds from the investment.
Investors can calculate the XIRR of their investments with ease with the help of Groww’s XIRR calculator. Here are the steps that should be followed:
Step 1: Enter the start date of the transaction
Step 2: Select the applicable frequency - “Fortnightly/Monthly/Quarterly/Half-yearly/Yearly”.
Step 3: Enter the invested amount.
Step 4: Enter the maturity date and maturity amount
Step 5: Calculate the XIRR.
The XIRR is a useful metric when an investor’s transactions are spread over time. For example, if an investor has made irregular investments or withdrawn from the investment, the XIRR can be useful.
The XIRR provides a more accurate measure of how much your investment has grown over time as it takes into consideration the timing of the transactions.
The compounded annual growth rate (CAGR) is a common metric to measure the growth of an investment, however, it is not suitable for investments where multiple transactions take place.
Imagine an individual has invested a fixed sum monthly for 36 months. With the help of CAGR, one can easily measure the growth of the mutual fund at the end of 36 months. However, for personal investments, one will need to calculate the CAGR for each individual investment. Hence, using an XIRR calculator for SIP makes this process easy and provides investors with a more accurate rate of return on their investments.
Using the XIRR calculator can benefit you in the following ways:
Unlike CAGR Calculator, which uses the traditional method of calculating your investment returns, XIRR Calculator can help investors easily calculate the returns of their investment where multiple transactions take place. This can be particularly useful for investments like mutual funds, SIPs, or any investment strategy where contributions and withdrawals are not uniform.
With the XIRR calculator, an investor can get the annualised rate of return on their investment. This helps them understand the growth rate of their investments on an annual basis.
Along with calculating the investment return, one can use the XIRR calculator to compare and assess the performance of their investments. This helps identify which investments are generating better returns.
It can be quickly computed using Excel’s XIRR function or online financial calculators, such as Groww XIRR Calculator.
When it comes to evaluating returns, there are several metrics that an investor can use. However, to ascertain the actual returns that your investment has generated, the XIRR is the most suitable metric. Since the XIRR considers all the transactions, it is more accurate, especially for SIPs and SWPs. The calculation of XIRR is tricky but with the help of an XIRR return calculator, this metric can be calculated by anyone.
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