XIRR Calculator

What is an XIRR Calculator?

An XIRR Calculator is a tool that helps determine the Extended Internal Rate of Return (XIRR) for a sequence of cash flows that occur at varying intervals, meaning that money is not invested or withdrawn at consistent intervals.

Unlike simple return calculators, the XIRR calculator takes into account the timing of each cash flow. This gives a more precise picture of investment performance. It gets down to the most important aspect, thus showing you the annual return you are really getting.

Let us understand in brief about XIRR;

XIRR (Extended Internal Rate of Return) is a more flexible version of IRR (Internal Rate of Return) that considers different times when money is invested. It helps you analyze the profitability of your investments in mutual funds, stocks, real estate, gold, etc.

How Can XIRR Calculator Help You?

An XIRR Calculator helps investors find the actual annualized returns on investments with irregular cash flows. Some of the important benefits of using an XIRR calculator are listed below;

1. Compare returns on SIPs and Lump Sum Investments Accurately: When you invest at various intervals, an XIRR calculator provides a more accurate analysis of your true returns rather than just giving an average.
2. Compare Different Investments Fairly: The calculator helps you compare the annualized returns you might get from different investment options. Accurate return calculations help you project future wealth and make sound decisions about your financial goals.
3. Simplify Complex Calculations: An investor does not need to do those boring calculations manually. Instead, he can do the calculations in just a few clicks since the XIRR calculator does the heavy lifting.
4. Easy to Use: Online calculators and spreadsheet functions simplify the XIRR Calculations, making them accessible to all, regardless of financial expertise.
5. Gain a Deeper Understanding: XIRR is all about showing how the timing of your investments is important. It helps you figure out how much your investments are worth, considering different cash flows and when they happen.

How Does an XIRR Calculator Work?

An XIRR Calculator effectively calculates the annualized returns on investments that feature irregular cash flows. It finds the discount rate that makes the NPV of all cash flows zero. A detailed description of the process is given below:

• Enter the dates for all investments and withdrawals, as well as cash flow amounts (negative for investments, positive for withdrawals).
• The XIRR calculator uses an iterative approach, i.e., it starts with a random guess and keeps refining it to find the correct answer.
• The calculator determines the present value of every cash flow. It adjusts the value of future cash flows to determine their present value, considering the timing of when they occur.
• The calculator then displays the annualized return. The result is presented as a percentage return, showing how much you earn annually.

Formula to Calculate XIRR Calculation

The calculator’s objective is to find the annual rate of return (XIRR) that makes the net present value (NPV) of all cash flows zero. The XIRR calculates the discount rate ( r ) that makes all cash flows’ Net Present Value (NPV) equal to 0.

NPV = ∑ [ Ci / {(1+r) ^ ((di-do)/365)}] = 0

Where,

Ci = Cash flow at time i (negative for investments, positive for withdrawals)
di = Date of each cash flow
do = Start date of the first investment.

r = XIRR

• Input the cash flows and exact dates of each cash flow. Apply the formula and solve for r, the discount rate that makes NPV = 0.
• XIRR is solved using the Newton-Raphson Iteration method.

Example of XIRR Calculation

Suppose you invested in a mutual fund scheme at different times and redeemed the investments later, and now you want to calculate the XIRR. The timing and amount of cash flows are mentioned below:

Date	Cash Flow (Investment -ve, Withdrawal +ve) – In ₹
01-Jan-2022	-50,000 (Investment)
15-July-2022	-30,000 (Investment)
10-Dec-2023	1,20,000 (Withdrawal)

Step 1:

Use the XIRR Formula

Step 2:

Convert dates into years

Date	Cash Flow (in INR)	Days from Start (di-do)	Years from Start [(di-do)/365]
01-Jan-2022	-50,000 (Investment)	0	0.00
15-July-2022	-30,000 (Investment)	195	0.534
10-Dec-2023	1,20,000 (Withdrawal)	708	1.94

Step 3:

Solve for XIRR using trial & error:

-50,000/ (1+r)^0 + -30,000/ (1+r)^0.534 + 1,20,000/ (1+r)^1.94 = 0

Since solving for r with this complex formula is a bit difficult, we will use trial and error.

Trying r = 20% (0.20)

-50,000/1 + [ -30,000/ {(1.20)^0.534}] + 1,20,000/ [{(1.20)^1.94}]

= 7,038 (since the sum is positive, we will increase the value of r)

= Trying r =26% or 0.26 in the same formula, we get the value 130, and for r=27%, we get a value of -923, which means the actual XIRR is just above 26%. This implies that your investments grew at an annualized return of just more than 26%, considering irregular deposits and withdrawals.

How to Use Pocketful XIRR Calculator?

Steps to use Pocketful’s XIRR calculator are:

• Step 1: Visit the Pocketful’s website. Click on the tools at the bottom of the page and click on the XIRR calculator tab. You will see an easy-to-use interface designed to enter investment details.
• Step 2: Enter all the cash flows invested and received, along with dates. Select the invest option if an investment was made, or select the redeem option if there was a withdrawal.
• Step 3: Click on ‘calculate XIRR’. The calculator will compute the annualized return in % using the XIRR formula.

With the help of Pocketful’s XIRR calculator, you can easily evaluate your investment returns and optimize your investment decisions.