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translateGLOSSARY · CAPITAL MARKETS

What is Internal Rate of Return (IRR)?

IRR is the discount rate at which a project's NPV equals zero — effectively its annualised expected rate of return.

PrepClever Glossary · Capital Markets

updateUpdated July 2026

Formula

0 = Σ [Cash Flowₜ ÷ (1 + IRR)ᵗ] − Initial Investment

IRR is the break-even discount rate for an investment. A project is generally accepted if its IRR exceeds the required rate of return (hurdle rate). It is widely used in private equity and project finance to express returns as a single percentage.

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Example

If a fund turns ₹100 into ₹200 over 5 years, its IRR is roughly 15% per year.

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Relevant NISM series

CFA

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Related Terms

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Glossary

Net Present Value (NPV)

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Glossary

Discounted Cash Flow (DCF)

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FAQs about Internal Rate of Return (IRR)

What is a hurdle rate?add

The minimum acceptable IRR for a project or fund. If the IRR is above the hurdle rate, the investment clears the bar; below it, the investment is rejected.

Where to go from here

Internal Rate of Return (IRR) is one term in a much larger syllabus. These are the fastest routes into the rest of it.

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