Guide · Return Metrics

CAGR vs XIRR vs Absolute Return — What's the Difference?

When you look at your mutual fund portfolio on Groww or Zerodha, you see different numbers — XIRR, CAGR, and absolute return. They are all measuring returns, but in completely different ways. This guide explains each one clearly with examples, and tells you which to use when.

By Rajat · Updated 2024

The One-Line Answer

Absolute Return: Quick total gain % — no time context

CAGR: Annualised return for lumpsum investments

XIRR: Annualised return for SIP / multiple cash flows

Deep Comparison

Absolute Return

(FV − PV) ÷ PV × 100

Use for:Quick check — how much did I make in total?

Best for:Short-term lumpsum investments (<1 year)

Limitation:Ignores time — 50% in 1 year vs 50% in 10 years look the same

Example:₹1L → ₹1.5L = 50% (regardless of duration)

CAGR

(FV ÷ PV)^(1÷n) − 1

Use for:Annualised return for a single lump sum investment

Best for:Comparing lumpsum investments of different durations

Limitation:Not accurate for SIP (multiple cash flows at different times)

Example:₹1L → ₹2L in 5 years = 14.87% CAGR p.a.

XIRR

IRR across irregular cash flows (Excel/solver)

Use for:True annualised return for SIP or multiple investments

Best for:SIP returns, lumpsum + SIP combined, partial withdrawals

Limitation:Requires computation — cannot be done manually easily

Example:₹5,000/mo SIP for 5 years → ₹4.2L corpus = ~12.3% XIRR

Which Metric Do Groww and Zerodha Use?

When you view your SIP portfolio on Groww or Zerodha Coin, the return percentage shown is XIRR — not CAGR, not absolute return. This is the correct metric for SIP because it accounts for the fact that each monthly instalment was invested at a different time.

When you look at a mutual fund's historical performance (e.g., "Axis Bluechip Fund 5-year returns"), that number is CAGR — assuming a single lumpsum investment at the start.

⚠️ Common Mistake

Many investors compare their SIP's XIRR (e.g., 11%) to a fund's historical CAGR (e.g., 15%) and think they are underperforming. But these metrics are calculated differently. This comparison is misleading. Use XIRR vs XIRR or CAGR vs CAGR for fair comparisons.

Why Can't You Use CAGR for SIP Returns?

CAGR assumes a single investment at t=0 and a single withdrawal at t=n. But in a SIP, you invest ₹5,000 at month 1, ₹5,000 at month 2, ₹5,000 at month 3 — each at a different time.

The ₹5,000 invested in month 1 has been compounding for 5 years. The ₹5,000 in month 60 has been compounding for just 1 month. CAGR cannot handle this — it was designed for a single cash flow. XIRR handles each cash flow's individual timing correctly.

Rule of thumb:

Lumpsum investment → use CAGR

SIP / multiple investments → use XIRR

Quick eyeball check → use Absolute Return

Disclaimer: This article is for educational purposes only. Mutual fund investments are subject to market risks. Past returns are not indicative of future performance.Read our methodology →

Calculate CAGR of Any Investment

Use our free CAGR Calculator — supports lumpsum and lumpsum+SIP combined mode.

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