The full guide
XIRR: The Only Honest Return Measure for Real Portfolios
Reviewed and updated July 16, 2026 · Written for Sri Lankan investors and borrowers
Nobody invests the way textbook return formulas assume. Real Sri Lankan investors drip money into unit trusts monthly, buy CSE shares when a bonus arrives, skip contributions during hard months and withdraw for a wedding or a medical bill. When money moves in and out on irregular dates, simple return calculations break down, and XIRR, the extended internal rate of return, becomes the only measure that tells the truth.
This guide explains what XIRR actually computes, walks through a realistic example, and shows how to use it to compare your messy, real-world portfolio fairly against a fixed deposit.
What XIRR actually is
XIRR finds the single annualized rate at which every one of your cash flows, each on its exact date, would have had to grow to produce your portfolio’s current value. Money invested three years ago is credited with three years of compounding; money added last month, only one month. Deposits count as money in, withdrawals and the current value as money out, and the calculator solves for the rate that balances them.
This date-weighting is precisely what naive calculations miss. Dividing total gain by total deposits ignores when each rupee arrived, flattering portfolios where most money came in late and understating ones funded early.
A realistic Sri Lankan example
Suppose you invested in a unit trust with the following pattern: Rs 100,000 in January 2024, Rs 50,000 in July 2024, Rs 100,000 in March 2025, and the holding is worth Rs 290,000 in July 2026. Total deposits are Rs 250,000 and the gain is Rs 40,000, which naive division calls 16 percent. But that 16 percent was earned over two and a half years, on money that arrived in stages. XIRR annualizes it properly, and the true yearly rate comes out meaningfully lower, a figure you can then compare against anything else quoted per year.
| Date | Cash flow | Description |
|---|---|---|
| 2024-01-15 | minus Rs 100,000 | Initial unit trust purchase |
| 2024-07-15 | minus Rs 50,000 | Top-up from bonus |
| 2025-03-15 | minus Rs 100,000 | Further purchase |
| 2026-07-15 | plus Rs 290,000 | Current market value |
Comparing against an FD fairly
Fixed deposits are the natural benchmark for Sri Lankan savers, but comparing them against a portfolio requires care. An FD rate is quoted per year with a defined compounding basis, while your portfolio return must be computed from its cash flows. XIRR puts both on the same footing: if your unit trust XIRR over three years was below what an FD paid over the same period, the extra risk earned you nothing.
Make the comparison after tax as well. FD interest carries a 10 percent advance income tax deducted at source, and dividends from CSE holdings carry a 15 percent withholding tax under current rules, so adjust both sides before declaring a winner.
Reading XIRR results sensibly
XIRR over short periods is noisy and can look absurd: a lucky month annualized becomes a triple-digit rate that means little. Trust it over horizons of a year or more, and recompute a rolling figure as time passes. Also remember that a single portfolio XIRR blends everything; computing it separately for your CSE holdings and your unit trusts shows which part of the portfolio is actually working.
Keep a simple, dated record of every deposit and withdrawal, since XIRR is only as accurate as your cash-flow history. A plain spreadsheet with date and amount columns is enough, and it turns the calculator above into an honest scoreboard for your investing decisions.
Common mistakes when computing XIRR
Three errors account for most wrong XIRR results. First, mixing up signs: every deposit must carry one sign and every withdrawal plus the final value the opposite sign, consistently. Second, forgetting dividends and distributions; a dividend you took as cash is a withdrawal on its date, while one reinvested is already reflected in the current value and must not be entered again. Third, omitting the valuation date entry entirely, without which the calculation has nothing to solve toward.
When your XIRR looks implausibly high or low, check these three before doubting your investments. Once the inputs are clean, the number you get is the most honest single answer available to the question every investor eventually asks: what has all this actually earned me per year?
Choose a fixed review date — quarter-end is practical — and save the broker or fund statement supporting that day’s market value. Compute a benchmark XIRR with the same external cash-flow dates, as though each deposit went into the chosen FD, Treasury instrument, or index proxy; comparing your result with an unrelated headline return is not fair. Keep fees and taxes either inside both cash-flow series or outside both. This repeatable review separates investment performance from your saving behaviour and makes a disappointing result actionable: allocation, cost, and security selection can be examined without blaming the timing of deposits you controlled for household reasons.
Sources & further reading
This guide is educational and reflects publicly available rules and market conventions at the review date. Tax rates, bank rates, and regulations change — verify current figures with the institution or the Inland Revenue Department before making a financial decision. Nothing here is financial, tax, or investment advice.