SampattiTrackUse absolute return for a quick total gain, CAGR for a single investment held over several years with no money added or removed, and XIRR whenever money moved in or out on different dates, as with SIPs. All three describe the past; they differ in how they treat time and cash flows.
Absolute return
Absolute return is the simplest measure: how much did the value grow compared with what you put in?
If you invested ₹1,00,000 and it is now ₹1,80,000, the absolute return is 80%. That is easy to read, but it hides time. Eighty percent in three years and eighty percent in thirty years are very different outcomes.
CAGR: compound annual growth rate
CAGR answers: at what steady yearly rate would the starting amount have grown to the ending amount? It smooths out the ups and downs into one annual figure.
Worked example 1
₹1,00,000 grows to ₹1,80,000 in 3 years.
- Divide end by start: 1,80,000 ÷ 1,00,000 = 1.8
- Raise to the power 1/3: 1.81/3 ≈ 1.2164
- Subtract 1: 0.2164, or 21.6% a year
Check: 1.2164 × 1.2164 × 1.2164 ≈ 1.8, so three years at 21.6% turns ₹1,00,000 into ₹1,80,000.
Worked example 2
₹2,00,000 grows to ₹3,00,000 in 5 years. The ratio is 1.5, and 1.51/5 ≈ 1.0845, so the CAGR is about 8.4% a year, even though the absolute return is 50%.
CAGR works for periods in fractions of a year too: use days ÷ 365 for the number of years. Its limitation is that it only knows the start and end. It cannot see money you added or withdrew in between.
XIRR: when money moves on different dates
XIRR generalises CAGR to many dated cash flows. It finds the annual rate that makes every investment and withdrawal, on its actual date, equal to the final value. See What is XIRR for the formula and a table.
The same quarterly example shows the gap. You invest ₹10,000 on 1 Jan, 1 Apr, 1 Jul and 1 Oct 2025 and 1 Jan 2026, and on 1 Apr 2026 the holding is worth ₹55,000 (455 days after the first investment).
| Measure | How it is computed | Result |
|---|---|---|
| Absolute return | (55,000 − 50,000) ÷ 50,000 | 10.0% |
| CAGR (misapplied) | Treat ₹50,000 as invested on day 0; (55,000 ÷ 50,000)365/455 − 1 | 7.9% |
| XIRR | Uses each instalment's actual date | 13.4% |
The misapplied CAGR is too low because it pretends all ₹50,000 was invested from day one, when four-fifths of it joined later. XIRR is the one that fits.
Comparison table
| Aspect | Absolute return | CAGR | XIRR |
|---|---|---|---|
| Accounts for time | No | Yes | Yes |
| Handles multiple cash flows | No | No | Yes |
| Best for | Quick total gain | One lump sum, held and untouched | SIPs, top-ups, withdrawals |
| Result is | Total % | Annual % | Annual % |
| Needs dates | No | Start and end | Every cash flow |
| Main risk | Hides the holding period | Misleads if you added money | Annualises short periods dramatically |
Which should you use?
- One purchase, no other changes: CAGR (XIRR gives the same number).
- Monthly or quarterly SIP: XIRR.
- Lump sum plus later top-ups or partial redemptions: XIRR.
- Quick sense of total profit: absolute return, alongside the holding period.
- Comparing an investment with a fixed deposit rate: CAGR or XIRR, because both are annual rates.
Mistakes to avoid when comparing returns
- Mixing measures: do not compare one fund's absolute return with another's CAGR. Put both on the same basis, the same period and the same measure.
- Ignoring the period: a 12% figure for six months and a 12% figure for five years are not the same achievement.
- Cherry-picking dates: start and end dates change CAGR a lot. A start just before a market fall or just after it gives a very different story, so look at several periods.
- Forgetting costs: expense ratios, brokerage and taxes lower what you actually keep. Check whether the figure you are reading is before or after them.
- Treating the past as a promise: none of these measures predicts future returns.
Whichever you pick, remember that returns before tax, fees and inflation say little about what you keep. The numbers are history, not a forecast.
Key takeaways
- Absolute return is total gain over amount invested; it ignores time.
- CAGR = (end ÷ start)^(1/years) − 1; use it for one investment with no flows in between.
- XIRR handles multiple dated investments or withdrawals, which is why it suits SIPs.
- Applying CAGR to a SIP understates the return, 7.9% versus an XIRR of 13.4% in the example.
- Be wary of annualised figures for very short holding periods.
Frequently asked questions
Is CAGR the same as XIRR?
Only when there is a single investment and a single ending value. With several cash flows on different dates, XIRR is the correct measure and CAGR is not.
Can I use CAGR for a SIP?
Not reliably. CAGR assumes the money was all invested at the start. Because SIP instalments arrive over time, XIRR gives a truer picture.
Why is absolute return still useful?
It is quick and intuitive, and it shows total profit. Just read it together with how long you held the investment.
Does CAGR mean returns were steady each year?
No. It is an average rate that would produce the same end result. Actual yearly returns can vary a lot around it.
Putting it into practice
SampattiTrack shows investment holdings for mutual funds, stocks and gold with allocation, and calculates XIRR from your SIPs and other transactions, so you do not have to build the spreadsheet yourself. You can import CSV statements from your bank or broker, and your data stays on your device with optional private iCloud sync. Find it on the App Store.
This article is for educational purposes only. It is not investment, tax, legal or financial advice. Examples use made-up numbers, and past returns do not predict future results.