2. What is XIRR?
• IRR in XIRR stands for Internal rate of Return
• X- Stands non uniform cash flows
• XIRR is a mathematical formula which gives the
Annualized Return on Investments
• XIRR is the most important information
regarding investments
• All decisions with respect to Investments must
be taken after knowing the XIRR
3. How to calculate XIRR?
• What is need to calculate XIRR?
– Dates on which investments were made
– Amount of Investment made on each date
– Final Value or current Estimated value of
Investments
– Watch the following video on how XIRR is
calculated.
4. Let’s use XIRR to Calculate
• Money Back Policy
• Calculating Returns
– Step 1 : Write down cash flows out and in with dates
– 16 Year Term for Sum Assured Rs 1 • 1.1.2013 -9350
lakhs • 1.1.2014 -9350
• 1.1.2015 -9350
– 15% Money back after every 3rd, 6th, • 1.1.2016 -9350+15000 = +5650
9th, 12th year • 1.1.2017 -9350
– Balance 40% on Maturity at the end • 1.1.2018 -9350
of 15th year • 1.1.2019 -9350+ 15000 = +5650
• 1.1.2020 -9350
– In addition there is also accumulated • 1.1.2021 -9350
bonus Rs 900 per thousand* • 1.1.2022 -9350+15000 = +5650
(expected) at the time of maturity • 1.1.2023 -9350
• The word expected to be noted • 1.1.2024 -9350
very carefully • 1.1.2025 9350+15000 = +5650
• 1.1.2026 -9350
– Annual Premium : Rs 9350/= • 1.1.2027 -9350
• 1.1.2028-9350
• 1.1.2029 40000+90000= 130,000
5. Use Spreadsheet to calculate XIRR
Return of 4.11% - as good as a
Savings bank account
6. One More e.g.
• Endowment Policy
– 30 Year Term
– Sum Assured : Rs 5 lakh
– Annual Premium : Rs
15,680
– On Maturity after 30 years
amount to be received 2
times Sum assured
– What is the return on this
policy?
Return of 4.5% over 30 year period – again as good as savings account
7. One More e.g
• Insurance Term : 20
years
• Annual Premium : Rs 1
lakh
• No of Premiums : 10
• Maturity Value Rs 25
lakhs
• Rs 10 lakhs becomes Rs
25 lakhs – but, What is
the return?
Return of 5.9%
8. Another e.g.
• Gold Schemes
– 11 installments by us
– 1 installments by jeweler
• Returns
– 15.8%
• Where is the catch?
– No Cash back
– Must buy jewelry (not even
gold coins why?)
– pay 21% towards wastage
and making
– Net Return : -5%
9. Examples
• Investment of Rs 20,000 in 2000 Current value Rs 1.2 lakhs
– Return ?
• Investment of Rs 20,000 in 1990 Current Value of Rs 2.4 lakhs
– Returns?
• Investment of Rs 20,000 in 1990 Current Value of Rs Rs 4.8 lakhs
– Returns ?
• Annual Premium : Rs 40,000 Number of Premiums paid : 8 Accumulated Value : Rs
4,00,000
– Returns?
• Annual Premium : Rs 30,000 Number of Premiums Paid : 3 Accumulated Value : Rs
75,000
– Returns ?
• Any live Cases ?
10. Does return matter?
• Lets look at the examples we did just before
– Rs 20,000 invested in 1990 becoming Rs 2.4 lakhs in 2013
– Rs 20,000 invested in 1990 becoming Rs 4.8 lakhs in 2013
– Returns
• In first case : 11.4%
• In second case : 14.8%
– Amount invested is same, but the maturity value is double
– Difference in Return : 3.4%
– Just 3.4% return can double our wealth in 23 years
– What could have happened if you have invested
• In RD giving 8% return instead of Money back policy giving 4%
• In FD giving 9% return instead of Endowment Policy giving 4.5%
• Investing Rs 1 lakh per year in FD giving 9% return rather than policy giving 5.9%
• Returns matter a lot and let’s not make mistakes in calculating
returns on our Investment
11. How much return are you making?
• Calculate the returns on property Investments?
• Calculate the returns on Insurance?
• Calculate the Returns on Mutual Funds?
• Do it now
• Do it today evening
• But, Don’t keep it for tomorrow
12. Is there a scope to improve returns by 3% without
increasing Risk, so we can double our wealth?
• 3% improvement in XIRR • Where is the scope to
can double wealth increase XIRR?
• 6% improvement in XIRR – Buy Online Insurance Only
can make us rich by 4 – Invest in Gold not in Jewelry
times – Invest in Second hand property
where you are sure how much
• 9% improvement in XIRR carpet area is available (In the
new flats what is shown in the
can make us rich by 8 drawing is always different from
times what is given finally)
– Buy Mutual funds online
– Re-evaluate Direct Investments
in Equity
