Key Takeaways
- CAGR suits a single investment with one start and one end value.
- XIRR handles multiple inflows and outflows on different dates.
- For SIPs, XIRR is the appropriate annualised-return measure.
- Both express returns as an annual percentage for easy comparison.
On this page
What CAGR measures
Compound Annual Growth Rate (CAGR) answers a simple question: if one amount grew to another amount over a period, what constant annual rate would produce that? It assumes a single investment and a single redemption, so it is ideal for a lumpsum.
CAGR = (Ending / Beginning)1/years − 1
Why SIPs need XIRR
A SIP is not one investment — it is many, each made on a different date, each invested for a different length of time. CAGR cannot capture that. XIRR (Extended Internal Rate of Return) finds the single annual rate that makes the present value of all those dated cash flows equal to zero, correctly weighting each instalment by how long it stayed invested.
Which to use
- One-time investment held to a date → use CAGR.
- Regular or irregular contributions and withdrawals → use XIRR.
Dedicated CAGR and XIRR calculators are on our roadmap. The SIP calculator already illustrates growth under an assumed constant rate.
Sources
We reference primary and official sources. Rate- and rule-dependent details must be verified against the latest official information.
Related Calculators
Related Guides
How Compound Interest Works
Compound interest is interest earned on both your principal and previously earned interest. Over time, and with more frequent compounding, it grows money faster than simple interest.
investingHow Does a SIP Work?
Each SIP instalment buys mutual fund units at that day's price. Over time you accumulate units at an averaged cost, and staying invested lets returns compound.
investingHow to Calculate SIP Returns
SIP returns are estimated with the future value of an annuity formula. For real, uneven cash flows, XIRR gives the annualised return that accounts for the timing of each instalment.
investingSIP vs Lumpsum Investing
A SIP spreads investment across time to average out entry prices, while a lumpsum invests everything at once. Each suits different situations and cash-flow realities.