Your fund app shows one return, your friend quotes another and the fund factsheet a third. They can all be right, because they answer different questions.
Absolute return
Absolute return is the plain percentage gain: (current value − invested) ÷ invested. ₹1 lakh that becomes ₹2 lakh is a 100% absolute return, whether it took 2 years or 12. That is why it is misleading for anything longer than a year.
CAGR
CAGR (compound annual growth rate) is the steady yearly rate that turns the starting value into the ending value. ₹1 lakh to ₹2 lakh in 6 years is a CAGR of about 12.2%. CAGR is the right measure for a single lump sum held for a known period.
Formula
CAGR = (ending value ÷ starting value)^(1 ÷ years) − 1
XIRR
XIRR handles many cash flows on different dates, like monthly SIPs, extra top-ups and partial withdrawals. It finds the single yearly rate at which all your investments, grown to today, equal your current value. Each instalment is credited only for the time it was actually invested.
One SIP, three numbers
₹10,000 a month for 36 months (₹3.6 lakh in total), worth ₹4.5 lakh at the end:
| Measure | Result | What it says |
|---|---|---|
| Absolute return | 25% | Total gain on money put in |
| CAGR on ₹3.6 lakh over 3 years | ≈ 7.7% | Wrong: assumes all money was invested on day one |
| XIRR | ≈ 15% | Right: the last instalments were invested only for weeks |
Which one to use
- Single lump sum held for a known period: CAGR.
- SIPs, top-ups, withdrawals, or a whole portfolio: XIRR.
- Less than a year, or a quick sanity check: absolute return.
- Compare against what the same money would have earned elsewhere (FD, index fund) using the same measure.
Calculators for this guide
Finkoin tip
Enter your SIP dates and current value in the XIRR calculator to see your real yearly return.
Try it on Finkoin →FAQs
Clear answers in plain language. Educational guidance only.