A return is your earning per rupee invested and you’ll be entitled to that earning at some point in time. You may take away that earning to spend or may choose to reinvest it. A “simple return” is where you take the earning away while a “compounded return” is where you reinvest that earning, which then also earns a return. Hence a compounded return is an earning on earning. To make such returns comparable, they are expressed in percentage for a year. This is Compounded Annual Return.