One common issue that all mutual fund investors or to that matter even direct stock investors face is that we don’t know how our investments are performing. Are we getting 7% or 10% or 15%. XIRR is the answer.
We invest in stocks and mutual funds in different ways. In guaranteed return schemes like FD, EPF or PPF, we are aware what are our returns. So its easy. But in case of mutual funds and stocks there are two major differences. So knowing how much overall returns we had over long period is very difficult to find with normal calculation.
Today we will restrict ourselves to just mutual funds. But if you understand the concept, then you can apply to other investments like stocks and ULIPs etc.
What is XIRR and why we need it?
Full form of XIRR is eXtended Internal Rate of Return. Meaning of XIRR lies in X. Earlier we used to have IRR meaning Internal Rate of Return which was useful when time periods between investments were constant. Like say insurance policy with yearly premium. You invest amount every one year and get maturity also after a year of last payment.
XIRR was extension to IRR. But why this new term and what are situations that we needed it. When we invest money over long period of time, there are two key parameters. Time and Amount.
Amount is straightforward. Its how much rupees you are investing or withdrawing (at maturity or premature)
Time is date on which you invest money or receive money.
In traditional investment plans, there was some discipline. Let us say recurring deposits, you invest certain fixed money regularly every month. Say you do SIP (Systematic Investment Plan) for 5 years for 5,000 rupees.
Here amount is constant throughout and even time period of investment is constant. At the end of 5 years, you withdraw money. Calculating returns are simpler. IRR or Internal Rate of Return can be helpful. But we know life is not that straightforward.
In all likelihood, you may put some lumpsum at beginning or suddenly some 50,000 when someone tells you market is going to go up or you may withdraw some 35,000 to buy a new mobile suddenly on some day. You may withdraw all amount suddenly in 4th year and invest in other fund.
This is all what most investors do. Invest different amounts at different times. Invest different amount at different times, withdraw as we need, again invest some more etc.
When in such manner investments are different in amount as well as time period then earlier formulas were not useful. Hence came XIRR formula. So XIRR is basically tells us returns on our investment when amount and time period are not constant. So in case of mutual funds or stocks, if you want to really know how much yearly returns you got – You got to know XIRR.
How to get XIRR of Mutual Fund Investments? Most simple way
Not all of us are good at math or at least majority does not love math. But 100% of us want to know how much we got from our mutual fund investments.
All the mutual fund agents are sending us different whtasapp promotion messages and asking us to start SIP, plan for child education, retirement etc. If we see mutual fund returns, they do look good ( for now 🙂 ). But did I benefit? Did I got all these nice returns? Is it true Mutual Fund Sahi Hai for me? We do need these answers.
So simple way is not to apply our brains and use existing applications and know what are our returns. I have reviewed 3 direct mutual platforms – Kuvera, Groww and INDMoney. All three are free. Kuvera is my personal primary app but you can chose either of them. For XIRR, any of them should suffice.
All you have to do is sign-up and upload mutual fund statement available with CAMS or Karvy from earliest period you started investing in mutual funds. Steps are provided in my review. It will quickly provide you XIRR % of your mutual fund investments so far.
Based on that you would know how your investment are performing and can make some judgement of what to expect in future (if you continue with your style).
Enough of promotion of my blogs. Let us see how we can calculate ourselves.
How to get XIRR of Mutual Fund Investments? Another simple way
There may be situations like you don’t trust these apps for say privacy reasons or you don’t want XIRR of all mutual funds or you want to see recent XIRR of last couple of years ( we think we get smarter with time ). So above method may not help you.
You will need to use Microsoft excel to do calculation. Its not that difficult. You can download and use excel attached in the blog. Don’t worry, no need to subscribe to my blog for downloading. 🙂 Hayppy?
When you open, it will look something like this. Beauty of XIRR is you can see date, month and years are random and even amounts are different. Still it is able to give you weighted returns over the period.
Note : Above scheme, dates and amounts are random and there is no co relation with actual returns of SBI Focused Equity Fund whatsoever. When you use excel, please delete these records and add yours. Data is just for explaining an example.
In column A, we should add name of mutual fund or stock in which you are investing. This is not used for calculation but more for your information.
In column B, we need to enter dates of investment or redemption.
In column C, we need to enter amount of investment or redemption. Only one care we need to take is when money goes out of your bank account (when you invest) then it should be -ve and when it comes back in your account (you withdraw or scheme matures ) then it should be +ve amount.
In above example, there are two redemptions – on 15th May 2007 and 1st Feb 2020. So 30,000 and 2,00,000 are positive (without any sign). Rest all are investments and hence you can see these amount as negative.
Please note last row is very important. If you have not redeemed some funds as of today, you will need to put the today’s value of that or those funds and today’s date in last row. Then only you will get correct XIRR. That value should be +ve. It is like this – if I redeem it today, how much money I will get in my account.
As you keep adding details, you could see XIRR getting changed. Once you are done with all entries, then you will see final XIRR. Based on your needs, you can enter details of just one scheme or one stock or combination of them or you could enter data for certain period only. Based on your inputs, you will get XIRR for that amount and period.
You can enter as many records as you wish. Delete unwanted records.
What is good XIRR?
There is nothing like good or bad XIRR. Your mutual fund investment should be in line with your risk profile. What XIRR helps you is to judge how your investment fared over long period of time.
Let us say you are predominantly investing in say balanced fund and say they are providing around 12% returns. Your XIRR should be close to this return. If its more then either you are investing in good schemes or you are investing more when market is low.
Vice versa if your returns are less than benchmark for your style of investment, may be your funds have not performed that well as of date or you have invested more amount when market was high. So your overall returns are not that good.
Is XIRR calculates perfect return?
Unfortunately No. It is approximate calculation of returns but reasonable close to actual returns. Unfortunately, there is no better or accurate method available which will give exact return. So for now, we need to live with XIRR. Having said that, with sample calculations, it is observed to be very much close to accurate return.
You can download XIRR Calculator.