## Analyze various investment options.

Know your Internal Rate on Return and make informed investment decisions.

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# IRR Calculator

###### What is IRR?

Internal Rate of Return (IRR) is a metric used to determine the profitability of an investment. It denotes the rate at which the Net Present Value (NPV) of all cash flows from a particular investment becomes equal to zero.

In essence, it helps the investors determine the annual growth rate that an investment expects to generate. As a result, the higher the IRR, the better the return on investment.

###### How to Calculate IRR (Internal Return of Rate)?

Calculating the IRR is not simple as it has no fixed formula. It requires you to use a trial and error method to use different figures to determine the IRR.

Given the cumbersome process of calculating the IRR, you can use the IRR calculator on Tata Capital Wealth's website to determine the IRR for your investment. All you need to do is enter your initial investment, the expected returns at the end of each year, and the number of years in the calculator.

Click "Next," and the tool will display the IRR for the cash flow.

IRR is an important metric for investors to make well-informed investment decisions. An IRR online calculator allows them to determine the exact IRR for their investment cash flow and ensure efficient capital allocation.

1. Determine the amount you should invest to generate profitable returns.

2. Analyse and compare the various investment options available based on their returns and pick one that best suits your financial goals.

###### Advantages of using Tata Capital's IRR Calculator?

Tata Capital provides an easy-to-use IRR calculator online to determine the IRR on the investment cash flow.

Simply enter your initial investment amount, the expected returns at the end of each year, and the total investment tenure. The tool will calculate the IRR to guide your investment decisions!

Here are the various advantages of using Tata Capital's IRR calculator-

1. Plan your investment based on the IRR.

2. Get accurate results and save time spent on tedious manual calculations.

3. Choose the best investment from the options available.

## FAQs

IRR or internal rate of return denotes the annual rate of growth that any investment expects to generate. Here, the term internal means the calculation excludes external factors like inflation, risk-free rate, capital cost, etc. IRR serves as a financial metric to estimate the profitability of your investments.

IRR is the discount rate that makes the NPV or net present value of the cash flows equal to zero.

To calculate the IRR of an investment, you only require the cash flow of the investment. Let's understand this with the example below.

There is an investment avenue where if you invest Rs 10 lakhs now, you will receive the cash flow of Rs. 1 lakh for the next 4 years. At the end of the 5th year, you receive Rs. 1 lakh along with the invested amount. Therefore, your IRR will be as follows:

 Years Cash Flow 0 - 10,00,000 1 +100,000 2 +100,000 3 +100,000 4 +100,000 5 11,00,000 (10,00,000+100,000) IRR 10.0%

You can quickly compare more investment avenues using IRR. The higher the IRR, the more lucrative is the investment option.

The IRR calculator will help you analyse various investments options available by comparing their IRR. It allows you to choose the best investment option from the list.

If there are multiple IRR points for a project, it can be difficult to calculate the IRR.

One of the biggest limitations of IRR is that it makes assumptions that the future cash flow can be invested at the same IRR. As a result, the estimates obtained by IRR can be high.