In brief
MOIC (Multiple on Invested Capital) shows total value relative to invested capital. IRR (Internal Rate of Return) is the annualised discount rate that makes cash inflows and outflows balance. MOIC answers ‘how much’; IRR asks ‘how fast’. Neither alone describes risk or cash certainty.
AssetsNest research desk
The Owl view
MOIC measures magnitude; IRR measures speed. The pair becomes useful only after separating realised and unrealised value, reconstructing dated cash flows and removing financing that changes timing without changing underlying profit.
same MOIC in every example
₹100 becoming ₹200 has the same money multiple after three, five or ten years.
approximate IRRs
The annualised return falls sharply as the same doubling takes three, five or ten years.
Case file
July 2024ILPA's NAV guidance makes timing quality visible
When a fund borrows to make a distribution, DPI arrives earlier and reported IRR can rise although no portfolio asset was sold. ILPA's disclosure focus gives LPs the information needed to recalculate performance without the facility.
Cash received is real, but its source determines whether it represents realised investment value or new leverage.What the market often misses
- A high IRR on a small early distribution can coexist with modest total profit.
- MOIC can include marks that never convert to cash.
- Gross deal metrics cannot be compared with net fund metrics.
Questions before acting
- Which cash flows are realised and which are manager-valued?
- Was any call delayed or distribution accelerated by fund borrowing?
- How do net DPI, RVPI and TVPI reconcile with the quoted IRR and MOIC?
What this article establishes
- A 2.0x MOIC can have very different IRRs over three years and ten years.
- IRR can be flattered by early small distributions.
- MOIC can hide a long holding period.
- Read both with DPI, cash-flow dates and the underlying risk.
The time effect
Doubling money in three years is roughly a 26% annualised return; doubling in ten years is roughly 7%. The MOIC is 2.0x in both cases. This is why long-duration private investments need both measures.
Why IRR can mislead
IRR assumes a mathematical reinvestment framework and is highly sensitive to cash-flow timing. Borrowing at fund level to delay capital calls or distributing a small amount early can raise reported IRR even when total profit is unchanged.
Same profit, different speed
Invest ₹100 and receive ₹200. After 3 years: MOIC = 2.0x and IRR ≈ 26%. After 5 years: MOIC = 2.0x and IRR ≈ 15%. After 10 years: MOIC = 2.0x and IRR ≈ 7%.
Compare the mechanics
| Measure | Best use | Watch out for |
|---|---|---|
| MOIC | Total value creation | No time dimension |
| IRR | Annualised pace | Timing sensitivity |
| DPI | Cash actually returned | No residual value |
| TVPI | Total realised + unrealised value | Marking subjectivity |
What can go wrong?
Risks to understand
01Comparing gross returns with net returns
02Ignoring unrealised marks
03Different cash-flow timing
04Subscription-line distortion
05No measure captures risk by itself
India lens
How to apply this from India
For Indian AIFs and staggered investments, request the full dated cash-flow schedule and the valuation policy. A marketing slide with one IRR and one multiple is not enough to reproduce the investor's result.
Primary sources & further reading
Dated primary or institutional material is separated from calculations labelled illustrative.
ILPA — NAV-Based Facilities Guidance ↗IPEV — 2025 private-capital valuation guidelines ↗How AssetsNest researches and labels evidence →AssetsNest Investor Services — ARN 318691. This article is for educational and informational purposes only. It is not personalised investment, legal or tax advice, an offer, recommendation or solicitation. Examples may be simplified. Investments involve risk, including possible loss of capital.