?? Sign Convention Rules: Use negative amounts (e.g. -10,000) for investments/buys (cash leaving your pocket), and positive amounts (e.g. +15,000) for redemptions, dividends, or the current value of the portfolio.
| # | Transaction Date | Amount (Inflow / Outflow) | Actions |
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Understanding Internal Rate of Return (XIRR)
Extended Internal Rate of Return (XIRR) is a mathematical standard used to calculate the annual rate of compound returns when cash inflows and outflows occur at completely irregular date intervals.
The calculation resolves the mathematical equation by seeking the specific rate value (r) that forces the Net Present Value (NPV) of all irregular transactions to resolve to exactly zero:
Where:
- CFi = Cash flow amount of transaction i (negative for buys, positive for sells).
- di = The specific date calendar timeline of transaction i.
- d0 = The initial reference date of transaction 0.
- r = The annualized internal rate of return (XIRR).
XIRR Frequently Asked Questions
CAGR (Compound Annual Growth Rate) evaluates a single point-to-point investment (e.g. ?1 Lakh growing to ?2 Lakh over 5 years). It is mathematically incapable of accounting for recurring monthly purchases or multiple interim cash redemptions. XIRR is designed specifically to solve complex multi-transaction timelines.
The solver will fail to converge if: 1. All cashflow values have the same sign (i.e. only investments and zero redemptions, or vice versa). 2. Multiple identical dates are mapped to conflicting transaction parameters. Ensure you have at least one negative outflow (investment) and one positive inflow (current value or redemption).
Yes. XIRR is the global wealth standard for monitoring mutual fund SIP accounts, stock trading portfolios, and venture assets since cash additions and redemptions occur dynamically at different points across year horizons.