6 Steps To Calculate XIRR In Mutual Fund By Excel

Calculate XIRR In Mutual Fund

Last Updated on September 15, 2023 by

What do we mean by XIRR in mutual funds? Whenever we invest in mutual funds, our primary aim remains to receive returns from our investment. There are various methods available to calculate XIRR In Mutual Fund.

Some of them are absolute, CAGR, XIRR, etc. CAGR, or Compounded Annualized Growth Rate, is a very common method through which you can find out how much growth your investment has showcased over a specific period of time.

However, there are a lot of cases where CAGR becomes irrelevant. For example, you cannot use the CAGR if there have been multiple investments in a single scheme during multiple periods through SIP or systematic investment plan. This is where XIRR becomes applicable.

XIRR is a mathematical formula that can help in determining the amount of profit or loss any individual has received from the total amount of money invested in Mutual funds. Your profits and losses will be displayed as a return rate. XIRR in mutual funds is one of the most popular methods of calculating how much returns you have received as an investor.

You can find XIRR in Microsoft Excel and use it to calculate your return on investment.

The term XIRR is the acronym for Extended Internal Rate of Return. With this particular method, you will be able to measure multiple transactions that have been conducted in different periods of time. With a CAGR, you can easily differentiate between mutual fund schemes and choose the best one for you, but XIRR in mutual funds can help you determine the return on investment from a particular mutual fund scheme.

How can you calculate XIRR using an excel sheet?

XIRR is already an incorporated feature of Microsoft Excel and it can help us simplify the way we calculate XIRR in mutual fund our return on investment through SIPs. First, we need to create a table in the excel sheet with the dates of the SIP and the cash flow and then we need to use the XIRR formula to calculate the returns.

Here is a step-by-step method on how to use XIRR for mutual fund in Excel:

Method of calculating XIRR in Excel

  1. Create a ‘Dates’ column and write down the dates of SIP transactions in the same.
  2. Next, create a ‘Values’ column just beside the ‘Dates’ column in which you need to enter the cash flow (deposits and withdrawals).
  3. In the next step, you need to check the redemption amount and date, which will be your last entry in the table.
  4. Now it is time for you to use the XIRR formula by choosing the cells according to the syntax.
  5. Syntax = XIRR (values, dates, [guess]).
  6. Guess is considered an optional field and if you don’t put any particular value in this field, then 0.1 will be its default value. The return rate is determined through an iterative process and that is why XIRR doesn’t stop until the result of the calculation is extremely accurate or under 0.000001%.

What are the things you need to keep in mind while calculating XIRR in Microsoft Excel?

Let us have a look at the things you need to consider while calculating your returns using XIRR:

  • For every mutual fund scheme, you need to create a separate excel file and note down the accurate cash flows. If you are changing the process of your SIP and do not have any exact information about your SIP, you should download the fact sheet of your mutual fund scheme to receive proper information. After completing the entire series, you will be able to get a better understanding of your return rate.
  • The cash flow value you are entering in the excel sheet should enter at least one positive and one negative value.
  • You need to check if the date format in the excel sheet appears in text format. Otherwise, the formula of XIRR in mutual funds will not function.
  • While entering the date, you need to be very careful and precise about the entire time frame or period. On the same date, if there has been an inflow and outflow of cash, then you will have to enter the same using two different rows. The XIRR formula will not work if you write two different values using a comma against the same or single date.

To conclude

If you have checked out the above section, then you must have realized how straightforward and convenient the XIRR method is and how you can easily calculate the SIP returns with the same. By applying the right methods, any investor will be able to calculate XIRR in mutual fund the growth of their investments.

In case you have assigned numerous transactions in mutual funds schemes, then you are required to use XIRR instead of CAGR to calculate your returns. As an investor, it is your responsibility to know what type of method is applicable, in which case to perfectly evaluate your returns.

Apart from this, if you are interested to know about Tips For You To Come To Be An Excel Specialist then visit our Lifestyle category.