How to Work Out What Your Monthly Investing Has Actually Returned

Why this is not a simple division

Neha has been investing monthly for four years. She knows what she has put in, she can see what it is worth, and she would like to know what rate that represents.

The instinct is to divide the gain by the amount contributed. That produces a figure, and the figure is not a rate of return, because the instalments have not been invested for the same length of time. Her first contribution has had four years to work. Last month's has had a month. Treating them as equivalent throws away the only thing that turns a gain into a rate.

The measure that handles this is XIRR, which weights every amount by how long it was actually invested. What it is and when it applies is set out in CAGR and XIRR; this page is how to run it and how to read the result.

What you need

Three things, and they are all obtainable from your statements.

Every cash flow with its date. Each contribution, and each withdrawal or partial redemption if there were any. Contributions are negative — money leaving you — and withdrawals positive.

The current value, dated today. This enters as a positive amount on today's date, as though you sold everything now. You are not selling; the calculation just needs a closing figure.

A spreadsheet. Put dates in one column and amounts in the next, contributions negative and the closing value positive, and apply the XIRR function to the two columns. The answer is an annual rate.

Two details that quietly ruin the result. The sign convention has to be consistent — if contributions are not negative the function will fail or return nonsense. And the closing value must carry today's date, not the date of the last contribution.

Reading the answer

The figure is an annualised rate, in money terms, after whatever costs were already deducted inside the fund, and before any tax you will pay when you actually sell.

Three comparisons people make with it are wrong, and one is right.

Not against the fund's published return. The fund's figure describes a single sum invested at the start. Yours describes money that arrived over time. They will differ even when the fund has done exactly what it claims, and finding them different is not a finding about the fund. This is the single most common misreading of a personal return figure.

Not against a deposit rate, without adjusting. A deposit rate is a rate on money that was all there from the beginning. Comparing it to your XIRR is closer to fair than the previous case, but only if the deposit alternative was also funded monthly.

Not against a headline index level. The index you see quoted usually excludes dividends while your fund receives them — the mismatch in price return against total return.

Do compare it against yourself over time, and against the return you need for the goal the money is for. Those are the two comparisons that can actually change a decision.

What a published "SIP return" is measuring

Fund pages often show a "SIP return" alongside the ordinary return. It is generally an XIRR computed on a hypothetical monthly investment of a fixed amount into that fund over some past period.

That is a legitimate calculation and it is not your return, for two reasons. Its dates are not your dates, and the period was chosen. A different start month produces a different figure, sometimes substantially, which is the general problem set out in rolling against point-to-point returns.

Treat it as an illustration of the arithmetic rather than as a description of what you got.

What the number does not tell you

Whether the result was good. A rate on its own has nothing to be judged against. The honest comparison is the range of outcomes the same discipline produced over other periods, which we have measured on the Indian record in a SIP does not remove market risk — and the range is very wide.

What you will keep. Tax is charged when you sell, lot by lot, and your XIRR is before it.

What it bought. The figure is in money. Converting it to purchasing power needs the subtraction in nominal return, real return and purchasing power.

And nothing about the future. It is a description of a period that has ended, which is a limitation it shares with every return figure ever quoted.

What to take away

Use XIRR, put every contribution in with its own date, make the signs consistent, and date the closing value today.

Then resist the comparison the app invites. Your number differing from the fund's number is arithmetic, not underperformance — and the useful question is not how your rate compares with the fund's, but whether it is on track for what the money is actually for.