How to Calculate SIP Returns: A Step-by-Step Guide

You've been investing in SIP for years. But when someone asks "What returns did you get?", do you know how to calculate it correctly?

SIP return calculation is trickier than lumpsum because money goes in at different times. Let's master all the methods.

Why SIP Returns Are Different

Lumpsum: One investment, one duration, simple calculation.

SIP: Multiple investments at different NAVs, each with different holding period.

Month	SIP Amount	NAV	Units	Holding Period
Jan	₹10,000	100	100	12 months
Feb	₹10,000	95	105.26	11 months
Mar	₹10,000	105	95.24	10 months
...	...	...	...	...
Dec	₹10,000	110	90.91	1 month

Each installment has a different return. How do you calculate the overall return?

Calculate your SIP returns: Use our SIP Calculator to get accurate projections.

Method 1: Absolute Returns (Simple but Misleading)

Formula

Absolute Return = ((Current Value - Total Investment) / Total Investment) × 100

Example

• Total invested: ₹1,20,000 (₹10,000 × 12 months)
• Current value: ₹1,35,000
• Absolute return: ((1,35,000 - 1,20,000) / 1,20,000) × 100 = 12.5%

Problems with Absolute Returns

Investment	Duration	Absolute Return	Looks Like
SIP A	1 year	12.5%	Great!
SIP B	3 years	12.5%	Same as A?

Both show 12.5%, but SIP A is clearly better (same return in less time).

Verdict: Use absolute returns only for periods under 1 year.

Method 2: CAGR (Better, but Still Imperfect)

Formula

CAGR = ((Current Value / Total Investment)^(1/Years) - 1) × 100

Example

• Total invested: ₹3,60,000 (₹10,000 × 36 months)
• Current value: ₹4,50,000
• Years: 3
• CAGR: ((4,50,000 / 3,60,000)^(1/3) - 1) × 100 = 7.72%

Problem with CAGR for SIP

CAGR assumes all money was invested on Day 1. But in SIP:

• First installment was invested for 36 months
• Last installment was invested for only 1 month

CAGR underestimates actual SIP returns.

Actual Scenario	CAGR Assumption
₹10K invested month 1 → 36 months	₹3.6L invested month 1 → 36 months
₹10K invested month 36 → 1 month	(nothing new)

Verdict: CAGR is okay for rough estimates but not accurate for SIP.

Method 3: XIRR (The Correct Method)

What is XIRR?

XIRR (Extended Internal Rate of Return) accounts for:

• Different amounts invested at different times
• The actual duration each amount was invested
• Returns the annualized rate that equates all cash flows

How XIRR Works

XIRR solves for 'r' in this equation:

0 = Σ (Cash Flow / (1 + r)^(days/365))

For SIP, cash flows are:

• Negative: Each SIP installment (money going out)
• Positive: Current value (money coming back)

Example XIRR Calculation

Date	Cash Flow	Type
01-Jan-2023	-₹10,000	SIP
01-Feb-2023	-₹10,000	SIP
01-Mar-2023	-₹10,000	SIP
...	...	...
01-Dec-2023	-₹10,000	SIP
31-Dec-2023	+₹1,35,000	Current value

Using Excel/Google Sheets XIRR function:

=XIRR(cash_flows, dates)

Result: 24.5% XIRR (vs 12.5% absolute return)

Why so different? Because average holding period is only ~6 months, not 12 months.

XIRR vs CAGR Comparison

Metric	Value	What It Represents
Absolute Return	12.5%	Total gain (ignores time)
CAGR	12.5%	Annualized (assumes lumpsum)
XIRR	24.5%	True annualized SIP return

XIRR is always higher than CAGR for growing SIPs because later installments have shorter holding periods.

Calculating XIRR in Excel/Google Sheets

Step 1: Set Up Data

Column A (Date)	Column B (Amount)
01-01-2023	-10000
01-02-2023	-10000
01-03-2023	-10000
...	...
01-12-2023	-10000
31-12-2023	135000

Note: SIP amounts are negative (outflow), final value is positive (inflow).

Step 2: Apply XIRR Formula

=XIRR(B1:B13, A1:A13) × 100

Result: Your annualized SIP return.

Step 3: Handle Ongoing SIPs

For active SIPs (not redeemed), use current date and current value:

Date	Amount
(all SIP dates)	-₹10,000 each
TODAY()	Current portfolio value

Which Metric When?

Situation	Use	Why
SIP for < 1 year	Absolute Return	XIRR can be misleading for short periods
SIP for 1-3 years	XIRR	Accurate annualized return
SIP for 3+ years	XIRR	Standard for long-term SIP
Comparing with FD/PPF	XIRR	Apples-to-apples comparison
Quick mental math	CAGR	Rough estimate is fine

Real-World Examples

Example 1: 3-Year SIP

Details	Value
Monthly SIP	₹15,000
Duration	36 months
Total invested	₹5,40,000
Current value	₹7,20,000

Calculations:

• Absolute Return: (7,20,000 - 5,40,000) / 5,40,000 = 33.3%
• CAGR: (7,20,000 / 5,40,000)^(1/3) - 1 = 10.1%
• XIRR: ~18.5%

Correct answer: 18.5% annualized return

Example 2: 5-Year SIP with Market Crash

Year	Market	SIP Contribution	Value at Year End
1	Normal	₹1,20,000	₹1,28,000
2	Crash	₹1,20,000	₹1,90,000
3	Recovery	₹1,20,000	₹4,10,000
4	Bull	₹1,20,000	₹6,50,000
5	Normal	₹1,20,000	₹8,20,000

Calculations:

• Total invested: ₹6,00,000
• Final value: ₹8,20,000
• Absolute Return: 36.7%
• CAGR: 6.4%
• XIRR: 14.2%

The crash in Year 2 actually helped—SIP bought more units at low prices!

Common Mistakes in SIP Return Calculation

Mistake 1: Using CAGR for SIP

CAGR assumes lumpsum investment. For SIP, it significantly underestimates returns.

Mistake 2: Annualizing Short-Term Returns

"My SIP gave 8% in 3 months = 32% annualized!"

Don't extrapolate. Short-term returns are volatile and misleading.

Mistake 3: Ignoring Dividends

If your SIP is in dividend payout mode, include dividends received in the final value.

Mistake 4: Wrong Date for Final Value

Use today's date (for ongoing SIP) or redemption date (for closed SIP), not an arbitrary date.

Mistake 5: Comparing SIP XIRR with Lumpsum CAGR

An SIP XIRR of 15% is NOT comparable to a mutual fund's 3-year CAGR of 15%. The fund's CAGR is for lumpsum; your XIRR is for SIP.

Interpreting Your SIP Returns

What's a Good XIRR?

XIRR Range	Rating	Context
< 8%	Below average	Below FD returns
8-12%	Average	Market returns
12-15%	Good	Above average
15-18%	Very good	Strong performance
> 18%	Excellent	Top quartile

Factors Affecting SIP Returns

Factor	Impact
Market timing (luck)	SIP started in crash = higher returns
Fund selection	Good fund vs bad fund = 3-5% difference
SIP duration	Longer = more stable XIRR
Asset class	Equity > Debt over long term

Tracking Your SIP Returns

Option 1: Mutual Fund Apps

Most apps (Groww, Zerodha Coin, Kuvera) show XIRR automatically.

Option 2: Consolidated Account Statement (CAS)

Order from CAMS/KFintech. Calculate XIRR from transaction history.

Option 3: Manual Excel Tracking

Maintain spreadsheet with:

• Date of each SIP
• Amount invested
• NAV at purchase
• Units allocated

Calculate XIRR periodically.

Conclusion

Method	When to Use	Accuracy
Absolute Return	< 1 year, quick check	Low
CAGR	Rough estimate	Medium
XIRR	Always for SIP	High

For SIP investments, XIRR is the only correct method to calculate returns. It accounts for the timing of each investment and gives you a true annualized rate.

Don't be misled by absolute returns or CAGR—calculate your XIRR to know your real SIP performance.

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Calculate your SIP growth: Use our SIP Calculator to project future returns and plan your investments.