In very simple terms, this is the annual (i.e per year) average returns earned by your investments over their entire investment duration.


Conceptually, CAGR ~ Absolute Returns/Investment Duration (in Years)


A very simple example to understand this would be, say you have Invested Rs. 10,000 in a fund and it’s returns over 3 consecutive years have been 5%, 10% and 15% respectively. While the total returns would be ~ 30%, the average annual returns made over the last 3 years is:

(5 + 10 + 15)/3 = 10% returns per year on average.


This average return per year is basically the CAGR.


Note: The above is not the exact formula for CAGR because investment returns are not calculated as simple returns but as compounding returns, but this is good enough for understanding the concept.


You can read about this more here.