Corporate FinanceFinancial Glossary
IRR (Internal Rate of Return)
Definition
The discount rate at which the net present value of all cash flows (both incoming and outgoing) from an investment equals zero. It represents the annualized rate of return that makes the investment break even in present value terms.
Why It Matters
IRR is the most accurate way to compare investments with irregular cash flows — such as ULIPs, real estate, or private equity. A ULIP showing '8% returns' in marketing material may have an IRR of only 5% when you factor in the premium allocation charges, mortality charges, and surrender fees in the early years.