Hey there!

Let’s talk about something I’ve been exploring recently and found really useful, especially if you're like me, trying to make sense of how your mutual fund investments are actually performing. If you’ve ever peeked into your DSP Mutual Fund app and seen terms like “Live XIRR” and “Historical XIRR” and thought, “What in the world is this finance lingo?" you’re not alone. I’ve been there.

So today, I want to break this down for you in a super-simple, no-jargon way.

First things first - What on earth is XIRR?

Okay, imagine this: You’re investing bits of your money over time into mutual funds. Sometimes more, sometimes less. Maybe you even pull some money out when you need it. Now, if you wanted to know how much your money has grown, you can’t just look at a plain percentage because your investments didn’t all go in (or come out) at the same time.

That’s where XIRR or Extended Internal Rate of Return comes in. It’s a smart way to calculate how your money has performed by considering every rupee you invested (or withdrew) and when you did it. It’s like telling the full story of your money’s journey, not just the highlight reel.

So, what’s the deal with Live XIRR?

Think of Live XIRR as a “what’s going on right now” snapshot. It only looks at the part of your portfolio that’s still active aka the investments you haven’t touched or sold yet. It says: "Here’s how your current investments are performing today."

It doesn’t care about what you sold off during a panic last year. It focuses entirely on the units you still hold in your portfolio and how those are doing. Pretty cool, right?

For example:

Imagine you've been investing in a mutual fund since 2019. You pulled out a chunk in 2022 when the market was shaky. Live XIRR ignores that old chapter and just looks at the part of your investment story that’s still unfolding. That makes it a great tool to assess what’s working for you right now, and helps you make smarter decisions about where to go next.

And then there’s Historical XIRR - the full story.

Now, if Live XIRR is a snapshot, Historical XIRR is the whole photo album. It considers everything you’ve done with that mutual fund:

• Every SIP
• Every dividend reinvestment
• Every withdrawal or redemption
• All of it.

This metric is more about looking back and saying, “Okay, how has my overall investment strategy played out over the years?”

So, using that same example:

Even if you sold some units during a dip, Historical XIRR keeps them in the picture. It calculates your total return from start to finish, giving you a holistic view of your investing journey the highs, lows, and everything in between.

Which one should you care about?

Both metrics matter, just in different ways.

• Live XIRR is perfect for understanding how your current choices are playing out. It’s like checking your pulse.
• Historical XIRR is your personal track record. It helps you evaluate your long-term investing behaviour viz your good calls, bad timing, and lessons learned.

By comparing both, you get to be a smarter investor. You can see what’s working now and learn from what’s happened in the past.

If your historical IRR is better, then you likely exited at the right time. If it's worse, then it’s worth examining your behaviour - why did you pull out at the bottom of the market? Or did you invest at the top?

So, the next time you open the DSP Mutual Fund App and see these two numbers, smile. You’re not just staring at confusing finance terms anymore; you’re reading a story. Your story.

And if you ever have feedback on the DSP Mutual Fund App or ideas on how we can make it better for investors like you, feel free to drop me a note at [email protected]. I’m always up for a chat about building better, smarter products for your investment journey.

Until next time
Happy investing and keep learning!