What is Internal Rate of Return (IRR) ?

POSTED BY Sourav ON September 19, 2013 4:28 pm COMMENTS (2)

Dear Manish.

Many a times I have came across a term called ‘Internal rate of Return’. Can you please tell me about it ? How is it calculated ? How is it beneficial to us in our financial planning ?

With regards.

Sourav

2 replies on this article “What is Internal Rate of Return (IRR) ?”

  1. Hi Sourav

    Internal Rate of Return means that rate which you finally got over an investment. When you pay X and get Y after Z yrs, its pretty easy to find out the rate of return you got . But when its very complex like – you pay 5 installments and you get back 2 money back in between and then finally some amount after 10 yrs , then it becomes a bit complex to find out the return . Then this IRR things comes into picture.

    People invest in products and policies based on the MONEY they put and MONEY they get like , Pay Rs 10,000 each year for 10 yrs and then get Rs 10,000 for next 50 yrs , If you look at this offer, people feel they are putting 1 lac in total and getting back 5 lacs in next 50 yrs, so they invest . But its such a disgusting policy where you are not getting any returns compared to FD’s or any other asset class , becasue when you ask what is IRR , you find out that its pretty low .

    I suggest you read these articles to understand more on IRR

    https://www.jagoinvestor.com/2009/08/what-is-irr-and-xirr-and-how-to.html

    https://www.jagoinvestor.com/2011/02/calculate-insurance-policies-returns-video.html

    I hope you get the understanding of IRR using these articles

    Manish

    1. Sourav says:

      Thanks Manish.

      The mentioned article discusses IRR in a informative manner.

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