CAGR vs XIRR vs Absolute Returns — Which to Use
Returns can be measured several ways, and each tells a different story. Here’s when to use CAGR, XIRR and absolute return.
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“What return did I get?” sounds simple, but the answer depends on how you measure it. Three common methods give three different (and all valid) numbers.
Absolute return
The simplest: total gain as a percentage of what you invested. ₹1 lakh growing to ₹1.5 lakh is a 50% absolute return. It ignores time, so it can’t compare investments held for different periods.
CAGR — for a single investment
CAGR (compound annual growth rate) converts total growth into a smooth yearly rate, so you can compare across time periods. Use it for a one-time (lumpsum) investment. Try the CAGR calculator.
XIRR — for SIPs and multiple cash flows
When you invest at different times (like a SIP) or add and withdraw money, CAGR breaks down. XIRR handles irregular cash flows, giving a single annualised return across all of them. It’s the right measure for your SIP portfolio — see what is XIRR.
Which to use
- Absolute — quick snapshot, single period.
- CAGR — one-time investment over time.
- XIRR — SIPs or any series of dated cash flows.
Always check which number a platform is showing before comparing funds.
