IRR vs CAGR?

POSTED BY Sethu ON September 13, 2012 4:33 pm COMMENTS (2)

Hi All,

IS IRR(internal Rate of Return) and CAGR one and the same? if different when IRR should be used and CAGR should be used ?

Thanks

Sethu

2 replies on this article “IRR vs CAGR?”

  1. bemoneyaware says:

    We make investments to earn returns. Return is the gain or loss in the value of an asset in a particular period.It is usually quoted as a percentage. The general rule is that the more risk you take, the greater the potential for higher return – and loss
    There are various kinds of returns:
    Absolute return or Point to Point Returns
    Average Annual Return (AAR)
    Compound Annual Growth Rate or CAGR
    Rolling Returns
    Relative Return
    Typically a simple point-to-point return is preferred when the holding period is less than one year and CAGR is ideal for longer holding periods – invest once and on maturity find the return.
    For multiple investments over period of time one needs to use IRR or XIRR
    Our article Understanding Returns: Absolute return, CAGR, IRR etc explains the concept in detail

  2. Dear SEthu, in asense IRR & CAGR are both same. Generally IRR is used where you are depositing some amount regularly & in between you are getting some money back also. So it’s for a series of cash in/outflow. Whereas CAGR is normally used for continuous investment & getting a final maturity value.

    Thanks

    Ashal

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