Internal rate of return (IRR)

1. IRR under Investment Return takes the cash flows of the account into consideration. i.e money coming into the account from the client and going out back to the client. Things like switches are not account cash flows since money does not go out to the client. For historical transactions imported, it uses the “Is Cashflow Event” tick on the transaction to determine if the transaction must be used in the calculation. The cash flows used is the same list as the cash flows used under Returns -> View Details -> Cash Flows button.

IRR under Instrument Performance is the cash flows for a instrument. This is money coming into the instrument and going out of the instrument. e.g a switch will be a instrument cash flow. For historical imported transactions we use the “Is instrument cash flow event” to determine if the transaction type is a instrument cash flow.

Things like distributions, fees, bank charges, interest, expenses are not cash flows.

2. IRR calculation is similar to the XIRR of Excel. Price Growth uses one of two methods depending on the setting under System -> Statement defaults:

a. ((statement closing price / average buy price) – 1) * 100

b. ((statement closing price / weighted average buy price) – 1) * 100

For Historical transactions we look at the “Use In Price Growth Calculation” to determine if the transactions should be used in the calculation.

Both IRR and Price Growth use the statement period for values.

Here is an example for Price Growth calculation and XIRR calculation

Performance for period & Annualised performance

Refer to the example Performance for period & Annualised performance

Basic Return

Basic Return = (EV – BV – CF) / (BV + CF)

• EV – Ending Value
• BV – Beginning Value
• CF – Cash Flows

NOTE: The Cash Flows are removed out of the equation when calculating the gain (because contributions aren’t a “return”, they’re simply a contribution), and are included as part of the starting balance. Which means the net growth is assumed to have occurred on both the starting balance, and the contributions themselves. (If the Cash Flows were withdrawals, the same adjustments would occur, simply in the opposite direction as outflows.)

Performance for period

Performance for period = (1 + p1) x (1 + p2) x …x (1 + pN) – 1

• p1 – Period 1

Annualised performance

Annualised for period = ((1+PP/100)^(365.25/(ED-SD+1)))-1)*100

• PP – Performance for period
• ED – End date for the period
• SD – Start date for the period

Last Updated on 6 years ago by Tinus Burger