What is XIRR / YTM?

XIRR also known as YTM is a commonly used term in the financial industry that helps calculate how much your investment grows annually, even when money is invested or repaid at different times.

In simple terms: It tells you the annualised growth of your money, taking into account the dates when you receive payments like interest or principal at different intervals.

How XIRR Works?
 

 • Cash flows: The series of investments (investment cash flows) and returns (repayment cash flows).

 • Dates: The actual dates when each cash flow occurs.

 • Annualized return: The formula calculates the return as an annualized percentage, accounting for the uneven time intervals between cash flows.

For example:

In a Fixed Deposit (FD), both principal and interest are generally paid together at the end of the maturity period. This results in a fixed return on a consistent principal amount throughout the tenure.
 

However, with bonds, both interest and principal might be repaid in parts at different intervals. This makes XIRR a more accurate way to measure the true annual return on your investment.

You can understand more about this by watching the video below.