XIRR (extended internal rate of return)
The extended internal rate of return or the more commonly used, XIRR, is the rate which calculates the returns on the total investment made with increments, paid throughout the period under consideration.
XIRR can be easily calculated using few excel steps,
The formula would go as “=(values,dates,[guess])”
Where values represents a series of cash flows, date represents a series of dates and ‘guess’ is the random assumption for IRR.
The returns on an investment fund’s Sip, made with installments paid at different dates, will be calculated using XIRR because the principal is spread across a period of time and is not paid in a lump sum.
Similarly, XIRR can be applied to get the returns on a stock we may keep reinvesting in by buying incremental amounts over time or on any other investment we top up from time to time.