Finally, I would like to mention that both XIRR and CAGR are utilised to determine the rate of return over a multi-year period. XIRR is essentially a modified version of CAGR.
XIRR is a useful tool when making a SIP investment. When looking at lump sum investments that were made over the course of one year, XIRR and CAGR should show comparable results.
Let’s take an example –
Investment date – 3rd Jan 2018
Investment amount – Rs.1,00,000/-
Today’s date – 3rd Jan 2020
Current value of investment – Rs.1,25,000/-
The CAGR works out to –
If you run the XIRR function on the same set of numbers –
You reach the same conclusion. I trust you comprehend the logic behind XIRR and CAGR.