CAGR vs. Absolute Return vs. XIRR: Which One Should You Use?
When checking how well your investments are doing, you might hear about CAGR, Absolute Return, and XIRR. These numbers all measure growth, but they work differently. Let’s break them down in simple terms.
Quick Comparison Table
| Metric | What It Measures | Best For | Watch Out For |
|---|---|---|---|
| CAGR | Smooth yearly growth rate (like average speed) | Comparing investments over same time period | Ignores ups and downs |
| Absolute Return | Total profit/loss percentage | Short-term investments | Doesn’t care how long you invested |
| XIRR | Yearly return with multiple deposits/withdrawals | SIPs, irregular investments | Needs exact dates of transactions |
When to Use Which?
1. Use CAGR When…
✔ You want to know the average yearly growth of an investment
✔ You’re comparing two investments over the same time period
✔ You made one single investment (no extra deposits)
🚫 Don’t use CAGR if:
- You added/withdrew money at different times
- You want to see month-to-month changes
Learn more: What is CAGR?
2. Use Absolute Return When…
✔ You just want to know total profit percentage
✔ You’re checking a short-term investment (like 6 months)
🚫 Don’t use Absolute Return if:
- Investments lasted different time periods
- You want yearly growth rate
3. Use XIRR When…
✔ You made multiple investments at different times (like SIPs)
✔ You took out some money before the end
🚫 Don’t use XIRR if:
- You made just one investment (use CAGR instead)
Try our: XIRR Calculator
Simple Rule to Remember
- One-time investment? → Use CAGR (Calculate here)
- Multiple transactions? → Use XIRR
- Quick profit check? → Use Absolute Return
For different ways to calculate: CAGR Calculation Methods
Pick the right tool to understand your investments better! 👍