Investor Corner/Building and judging a portfolio

3.2 Performance Measurement

The right way to measure a return once money moves in and out at different times: CAGR, XIRR, rolling returns and drawdown, and what each one is actually answering. A simple percentage return is misleading the moment money moves in and out at different times, which is exactly what happens with a SIP. CAGR, XIRR, rolling returns and drawdown each answer a slightly different question about performance, and knowing which one applies avoids drawing the wrong conclusion from a fund’s headline number.