SIP XIRR vs Absolute

Cousin showed me his SIP statement over chai last Sunday. Number at the bottom said 33 pct. He thought he was outperforming. I asked him to send the XIRR too. Eleven point four came back. Different conversation entirely.

The setup is plain vanilla. 10000 a month for sixty months. Six lakh invested. Today's value eight lakh. The same statement holds three completely different return numbers, and most retail apps only ever show the first one.

The headline number is absolute return. Total profit divided by total inflow. 33 pct. It looks great. It hides every detail about when each rupee arrived in the market.

Then there is the number on the fund's factsheet. The advertised 5Y CAGR. Around 14 pct in this example. That number assumes a single lump sum sat in the fund for the full five years. Your money entered piece by piece, month by month. You never lived that experience. The brochure number was never yours.

The honest one is XIRR. 11.4 pct here. It solves for the rate that ties every cash flow to the final value. It respects when each rupee arrived. The fund did 14 pct because a lump sum sat in it. Your average rupee has only been in the market for about two and a half years, not five. XIRR knows that. The headline does not.

Three checks I run before I trust any return number now. Ask for the XIRR, not the absolute. Compare apples to apples, your SIP CAGR will diverge from a brochure CAGR by 200 to 400 basis points in normal markets. And the shorter the SIP, the wider the gap, because timing did most of the work.

If your statement only shows you absolute return, you are reading half a story. The other half is when each rupee arrived. XIRR is the half that pays your rent in retirement