The calculator is on a fund house’s website and it takes three inputs. ₹10,000 a month. Ten years. Expected return, twelve per cent. It returns ₹23,00,387, and that number goes onto a sheet, into a message to a spouse, and into the sentence "by 2036 we will have twenty-three lakh". Ten years later the fund has in fact returned almost exactly twelve per cent a year and the account holds something else entirely, in one direction or the other. Nothing went wrong, nobody misled anybody, and the fund’s own reporting is accurate. The number on the sheet was the answer to a question that had not been asked.
A bus covers a route and its average speed for the trip works out at forty kilometres an hour. Two passengers were on it. One boarded at the depot and rode the whole way. The other got on forty minutes in, at the point where the road opens up, and got off before the town traffic. The bus’s average speed is a fact about the bus and it is the right number for the driver’s logbook. Quoting it to the second passenger answers a question about the vehicle rather than about the journey she took, and hers could easily have been faster or slower.
A fund’s ten-year return is a fact about the fund between two dates, and it is the right number for judging the manager, who does not decide when money arrives. Your return depends on when each rupee got on and how much of it there was. When money arrives in a hundred and twenty instalments, the fund’s number and yours are answers to two different questions, and they can differ enormously — in either direction.
Two returns, and what each one is a fact about
| The fund’s number | Your number | |
|---|---|---|
| What it is called | A time-weighted return. On a factsheet it appears as the 1-year, 3-year, 5-year and since-inception figures, and as a CAGR | A money-weighted return. On a platform statement it appears as XIRR, and in a spreadsheet as the function of the same name |
| What it measures | What one rupee, present throughout the whole period, would have earned | What the actual stream of rupees earned — each instalment weighted by how large it was and how long it was present |
| Who it is the correct measure for | The fund manager, who chooses the holdings and does not choose when money arrives or leaves | You, who choose almost nothing else |
| What it ignores | The size and timing of every contribution and withdrawal, deliberately — that is what makes it comparable between funds | Nothing. That is the point of it, and it is why it cannot be compared between people |
| Where the two agree | Only where a single amount went in at the start and nothing was added or taken out | Which is not how anybody with a salary invests |
Two paths, one ten-year fund return of zero
The cleanest way to see the size of the gap is to hold the fund’s number completely still and move only the path. Take a fund whose net asset value is 100 today and was 100 ten years ago. Its ten-year return is zero, on any path whatsoever, and every report it publishes will say so. Now run ₹10,000 a month through it for the whole hundred and twenty months — ₹12,00,000 invested — on two different paths between those two fixed points.
Which is why averaging is only half a rule
Rupee cost averaging is usually presented as a benefit you obtain by investing monthly. Path A appears to confirm it and path B refutes it, and the honest version has to account for both.
- For money that arrives monthly there is nothing to compare against. A salary arrives in instalments, so it is invested in instalments. The averaging is a consequence of how you are paid rather than a strategy anybody selected, and there is no alternative version of the decision in which the same money went in as a lump.
- For a lump that already exists, splitting it is a decision to hold cash. A bonus, a maturity, a property sale. Dividing ₹9,00,000 into twelve instalments means most of it sits outside the market for some months. On an asset that rises more often than it falls, that lowers the expected outcome; it also narrows the range of outcomes, which is a real benefit to somebody who could not survive the worst case. Both halves are true. The honest statement is that it trades expected return for a smaller spread — not that it produces a better return.
- The averaging is not a source of return. Path A’s +6.5% did not come from the instalments being clever; it came from the fund being cheap in the middle of the period. The identical mechanism on path B produced −7.6%. Anything that behaves like that in both directions is not an edge.
- A step-up changes the weighting again. Contributions that rise each year push even more of the total towards the end of the period, so the final years matter even more than they already did. That is not an argument against a step-up, which does other useful things. It is a reason not to read a ten-year fund return as a forecast of what a rising contribution will produce.
- None of this makes the fund’s number dishonest. It is the right measure of the manager, who is being judged on the decisions they actually took. Asking it to describe your outcome is asking it to include information it was specifically constructed to exclude.
What the calculator on the website is actually computing
It applies one constant monthly rate to every instalment, which is the arithmetic of a path that has never existed — no market delivers one per cent a month for a hundred and twenty months in a row. So the output is not a forecast and does not pretend to be. It is the answer to "what would this be if the volatility were zero", and it is useful as a check on the order of magnitude rather than as a target.
A fund’s NAV is 100 today and was 100 ten years ago, so its ten-year return is zero. A ₹10,000 monthly instalment ran for the whole period. What was the investor’s return?
Module checkpoint: the shape the question arrived in
5 questions. Answers are revealed once you submit all of them.
1.A household needs ₹30,00,000 on a date fixed by an agreement five years away, has ₹8,00,000 saved, and can add ₹25,000 a month — which together need about 8% a year. A profiling form places them at 70% equity. Which of the three tests decides the allocation, and why?
2.Two people hold the identical fund over the identical six years; one checks daily and one twice a year. On ordinary assumptions, what is the difference between them?
3.A household holding ₹11,20,000 against a cost of ₹9,00,000 moves ₹2,20,000 of it into a single smallcap because "only the profit is at risk". What is the accurate description of what happened?
4.A fund’s NAV was 100 ten years ago and is 100 today. What can be said about a ₹10,000 monthly instalment that ran throughout?
5.A ₹9,00,000 maturity has landed, and the plan is for it to sit in equity for the next twenty years. Somebody suggests splitting it into twelve monthly instalments "to get the benefit of rupee cost averaging". What is the accurate reading?
Dukaandaar ne bola "chawal ₹60 kilo" — aapne saal bhar mein thoda-thoda 200 kilo liya, kabhi ₹52 pe, kabhi ₹71 pe. Saal ke aakhir mein aapka asli bhaav ₹60 nahi hai, aur woh sirf tab pata chalta hai jab kab kitna liya woh bhi ginno. Calculator ne ₹10,000 mahina aur "12%" daal ke ₹23,00,000 nikaal diya, aur woh number dus saal se ghar ke plan pe chipka hai. Woh kisi ne poocha hi nahi tha us sawaal ka jawab hai. 12% fund ka return hai — ek hi baar daale hue paise pe naapa gaya. Aapka paisa har mahine gaya, yaani har instalment ne alag safar kiya: pehla dus saal chala, aakhri ek mahina. Isiliye do ghar, jinke fund ka dus-saal ka return bilkul ek jaisa hai, apne liye +6.5% aur −7.6% kama sakte hain — farak sirf isme hai ki bada paisa kab pada aur bura daur kab aaya. Jo number aapke liye sach hai use XIRR kehte hain: tareekh ke saath jama-nikaasi daalo, tab jawab milta hai. Fund ka return fund ka record hai; aapka return aapka record hai — aur do alag cheezein hain. Plan pe wahi likho jo aapne kamaya, aur quote wale number ko target maano, guarantee nahi.
- A fund’s reported return is time-weighted — what one rupee present throughout would have earned — and it deliberately excludes the size and timing of your contributions.
- Your return is money-weighted, arrives as XIRR, and cannot be compared with anybody else’s.
- On a fund with a ten-year return of exactly zero, the same monthly instalment produces about +6.5% a year on one path and about −7.6% on another.
- With money arriving monthly the balance is largest at the end, so the final years land on the biggest amount — and a step-up sharpens that further.
- A SIP calculator computes a path with no volatility in it: run it at three rates and convert the answer into today’s money before writing it anywhere.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- difference between CAGR and XIRR
- CAGR is the fund’s own number — what one rupee present throughout the whole period would have earned between two dates — while XIRR is what your actual stream of instalments earned, each one weighted by its size and by how long it stayed invested. CAGR is the right measure for the manager, who chooses the holdings but not when money arrives; XIRR is the right measure for you, who choose almost nothing else. The two agree only where a single amount went in at the start and nothing was added or withdrawn.
- a return that weights each cash flow by its size and the time it stayed invested is called
- A money-weighted return — reported on Indian platform statements as XIRR, and available in a spreadsheet as the function of the same name. Its counterpart is the time-weighted return, which deliberately ignores the size and timing of every contribution so that two funds can be compared with each other. Factsheets, star ratings and advertisements quote the time-weighted figure, because it is the only one that can be quoted to a stranger.
- why does my SIP XIRR not match the fund’s 10-year return
- Because the two answer different questions. The ten-year figure assumes one rupee present for the entire decade, whereas your instalments arrived across a hundred and twenty months, so most of your money has been in the fund for far less than ten years. This lesson works through a fund whose NAV is the same today as it was ten years ago — a ten-year return of exactly zero — where a monthly instalment still produces roughly +6.5% a year along one path and about −7.6% along another.
- what is rupee cost averaging
- Rupee cost averaging is the effect of a fixed instalment buying more units when the price is low and fewer when it is high, so the average cost per unit ends up below the average price over the period. It is a by-product of putting in a fixed rupee amount at regular intervals, not something that improves the fund’s own return. Whether it flatters or hurts your XIRR depends entirely on the shape of the path — the same fund return can go either way.
- where do I find the XIRR on my investments
- On your broker or fund platform statement, where it is usually labelled XIRR and computed from your own transaction history. You can also calculate it yourself in a spreadsheet: list every instalment as a negative amount against its date, put today’s value as a positive amount against today’s date, and apply the XIRR function. A fund factsheet will never carry it, because it is a fact about your cash flows rather than about the fund.