What is XIRR and how to check it in Zerodha?

Extended Internal Rate of Return (XIRR), is used to calculate the annualised return on investments, taking into account the timing and amounts of multiple cash flows.

When calculating returns on investments over multiple years with various transactions, relying only on absolute returns, which ignore the investment time period, may not provide an accurate result. For more accuracy, especially when dealing with multiple investments at different times, such as Systematic Investment Plans (SIPs), XIRR can be used. XIRR is an aggregation of multiple Compound Annual Growth Rates (CAGRs), with a focus on investments like SIPs. It is particularly valuable for calculating the performance of investments with multiple transaction points and durations beyond one year. To learn more about CAGR, see What does CAGR mean?

Several platforms calculate XIRR on the existing holdings breakdown, often neglecting past trades in the same stock. This approach provides an incomplete result, as XIRR is intended for evaluation across a longer timeframe, including all cash flows regardless of their timing. The Console XIRR feature for equity holdings gives a comprehensive XIRR for any stock, including all the trades from FY 2017. It provides a more comprehensive view, considering all cash flows after adjusting all the corporate actions like bonus, split, demerger, and buyback.

Investments less than a year

For investments with a combined breakdown of holdings and P&L less than 365 days, the following message is displayed if a client loads XIRR: XIRR is less suited for short-term investments. Consider absolute returns instead. This is because XIRR is more suited for longer-term assessments.

The application of XIRR extends to mutual funds, employing a similar approach that considers all corporate actions related to mutual funds for a precise depiction of annualised gains. To learn more, visit zerodha.com/varsity/chapter/measuring-mutual-fund-returns.

To check the XIRR, follow these steps:

Kite app

1. Tap on Portfolio.
2. Select the stock.
3. Tap on View breakdown.
4. Tap on View XIRR.
   

Kite web

1. Click on Holdings.
2. Hover over an instrument and click on Options.
3. Click on View Breakdown.
4. Click on View XIRR.