Watch & Learn · Visual explainer
Absolute Return vs CAGR vs XIRR
What is the difference between absolute return, CAGR and XIRR—and which one should I look at?
Absolute return shows the total percentage change without accounting for time. CAGR annualises growth between one beginning and one ending value. XIRR accounts for multiple cash flows at different dates, making it the more relevant measure for SIPs and real-world portfolios.
Visual explainer
See the whole idea
Comparison of absolute return, CAGR and XIRR
One start → one end
Absolute return
How much did the value change?
- Time
- Time ignored
- Best fit
- Simple, short holding
One start ⇢ one end
CAGR
What annual rate links start and end?
- Time
- Time included
- Best fit
- One investment over years
Many cash flows ⇢ value
XIRR
What annual rate fits dated cash flows?
- Time
- Timing included
- Best fit
- SIPs and irregular flows
Where investors go wrong
Comparing different measures as though they answer the same question, or judging a long-term investment with a short-term number.
Key takeaway
Use the return measure that matches the cash-flow pattern and time period you are evaluating.
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