How to read your mutual fund app's return number
Why the 'return' shown in most portfolio trackers is actually an XIRR, not a simple average.
Open any mutual fund app and it shows a single “returns” percentage next to your SIP holding. That number isn’t a simple average of what each instalment gained — it’s an XIRR, an annualised rate that accounts for exactly when each rupee went in. The distinction matters more than it looks, because the two numbers can land suspiciously close to each other while meaning completely different things.
What your app’s “returns” number actually is
Three SIP instalments of ₹10,000 each, purchased at rising NAVs of 100, 110, and 120 on Jan 2023, Jul 2023, and Jan 2024. By Jul 2024, the NAV has risen to 130, and the accumulated 274.24 units are worth ₹35,651.52. The simple total gain is ₹5,651.52 on ₹30,000 invested — an 18.84% absolute return. But using the real computeXirr formula on the actual dated cash flows, the annualised return is 18.55%— and it’s this second number, not the first, that your portfolio app is showing you.
Work out the annualised return across a series of dated cash flows.
Why simple math gets it wrong
The 18.84% and 18.55% figures above look close enough to seem interchangeable — but that’s a coincidence of this particular example’s short overall holding period, not a rule. The 18.84% is a cumulative gain: how much the money grew in total, with no reference to time at all. The 18.55% is annualised: what constant yearly rate, applied to each instalment from its own purchase date, would produce that same ending value.
A common shortcut — take the cumulative return and divide by the years since your first instalment — produces a third, wrong number here: 18.84% ÷ 1.5 years ≈ 12.57%, well below the real 18.55% XIRR. It understates the true rate because it treats the entire ₹30,000 as if it had been invested for the full 1.5 years, when the second and third instalments were only invested for 12 and 6 months respectively. XIRR avoids this by weighting every cash flow by its own actual number of days invested, not a single blended guess.
What this means when reading your own portfolio
For a single lumpsum with no further contributions, XIRR and a simple annualised return are the same thing — there’s only one purchase date to account for. The distinction only shows up once multiple instalments enter the picture, which is exactly the SIP case most portfolio trackers are built around. When you see a “returns” percentage next to a fund you’ve been SIP-ing into, read it as an annualised rate already accounting for each instalment’s own timing — not as a simple “how much did my total money grow” figure. See XIRR vs. CAGR for how this same annualised-rate idea differs once there’s only a single cash flow to measure, rather than several.
All figures are indicative and for educational purposes only — not financial advice.
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