Your Groww or Zerodha app says your SIP has given “32% returns.” Sounds great. But 32% of what? Over how long? Accounting for the fact that your first SIP instalment has been invested for 5 years while your last instalment was invested 1 month ago?
It does not. Most return displays in Indian mutual fund apps use absolute returns or a simplified CAGR that does not correctly account for the timing of each investment. The correct metric is XIRR.
The Problem With Absolute Returns
Absolute return = (Current Value - Total Invested) / Total Invested x 100
If you invested Rs. 12,00,000 total (Rs. 10,000/month for 10 years) and the current value is Rs. 24,00,000, absolute return = 100%.
That 100% return happened over 10 years, with instalments invested at different points. The first Rs. 10,000 was invested 10 years ago and has been compounding the whole time. The last Rs. 10,000 was invested this month. Averaging them as if they all earned 100% is misleading.
The Problem With Simple CAGR
Some apps divide total holding period into a CAGR, showing you something like “this SIP has compounded at 12%.” But CAGR assumes a single lump sum invested at the start. A monthly SIP is not a lump sum - it is 120 separate investments with 120 different time horizons.
If you put Rs. 12 lakh as a lump sum 10 years ago at 12% CAGR, you would have Rs. 37.3 lakh today. If you put Rs. 10,000/month for 10 years at 12% CAGR (true XIRR), you would have Rs. 23.4 lakh. Vastly different outcomes because the SIP did not have all the money working for 10 years.
Displaying “12% CAGR” for both is factually wrong for the SIP.
What XIRR Measures
XIRR (Extended Internal Rate of Return) is the annualized rate of return that, when applied to each cash flow on its specific date, explains the difference between all cash outflows (your SIP instalments) and the current portfolio value.
It solves the equation:
Sum of [Cash Flow(t) / (1 + XIRR)^(days_from_today/365)] = 0
This accounts for each instalment individually - Rs. 10,000 invested on January 1, 2015 has had 9+ years to compound, while Rs. 10,000 invested on December 1, 2024 has had 1 month.
How XIRR vs Absolute Return Differ in Practice
A Rs. 10,000/month SIP in Nifty 50 for 10 years:
- Total invested: Rs. 12,00,000
- Value at 10 years (12% XIRR): Rs. 23.4 lakh
- Absolute return: 95%
- XIRR: 12%
The absolute return of 95% sounds spectacular. The XIRR of 12% is the honest annual return. They are describing the same investment.
| SIP Scenario | Total Invested | Final Value | Absolute Return (misleading) | XIRR (correct) |
|---|---|---|---|---|
| 5 years, Nifty 50 | Rs. 6L | Rs. 9.2L | 53% | 16.1% |
| 10 years, Nifty 50 | Rs. 12L | Rs. 23.4L | 95% | 12.0% |
| 15 years, Nifty 50 | Rs. 18L | Rs. 52.1L | 189% | 13.8% |
| 5 years (bad market) | Rs. 6L | Rs. 7.1L | 18% | 6.2% |
The 189% absolute return for the 15-year SIP investor is not a lie - it is just a number without context that makes the investment sound much better than the honest 13.8% XIRR does.
Calculating Your XIRR
In Excel or Google Sheets:
- Create a column of all SIP dates
- Create a column of all SIP amounts as negative numbers (cash out from you)
- Add a final row with today’s date and current portfolio value as a positive number
- Use the function: =XIRR(values_column, dates_column)
Via platforms:
- Zerodha Coin: Shows XIRR natively in the portfolio view. Reliable.
- Groww: Displays “absolute returns” by default. Switch to the detailed view to see XIRR (they call it “annualized return”).
- INDmoney: Shows XIRR prominently. Best display among retail apps.
- MF Central: Shows XIRR in the consolidated account statement.
Why Apps Default to Absolute Returns
A mutual fund showing 100% absolute returns sounds better than 12% XIRR, even though they describe the same performance. This is not fraudulent - both numbers are technically correct calculations. But there is an obvious marketing incentive to lead with the more impressive-sounding number.
SEBI has not mandated XIRR as the primary disclosure metric for SIPs. When it eventually does, the industry’s return optics will change significantly.
The Benchmark Question
Once you know your XIRR, you need to benchmark it against the right index. The benchmark XIRR should be calculated the same way - using the Nifty 50 index returns on the exact same investment dates.
If your SIP in an active fund shows 14.2% XIRR and a Nifty 50 index SIP over the exact same period shows 12.8% XIRR, the active fund has genuinely delivered 1.4 percentage points of alpha. If your fund shows 11.9% XIRR vs the index’s 12.8%, you have paid extra fees for 0.9 percentage points of underperformance.
This is the correct way to evaluate any mutual fund SIP investment. The absolute return or fund’s marketed “star rating” is not.
Bottom Line
XIRR is the only honest measure of SIP performance, and it is available in every platform - sometimes prominently, sometimes buried. The 100% absolute returns your mutual fund app displays are technically accurate but structurally misleading because they do not account for the timing of each monthly investment. A 12-14% XIRR in Nifty 50 over 10-15 years is an excellent outcome and the appropriate expectation. Any SIP that shows less than 10% XIRR over a 10-year period in Indian equities has underperformed badly, regardless of what the absolute return number says.
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