CAGR assumes a single investment held for a set period. But a SIP adds money every month, and you may withdraw at odd times too. XIRR handles these irregular, dated cash flows and gives one annualised percentage return.
It works by finding the rate at which all your inflows and outflows, each weighted by its date, net to zero. Spreadsheet functions like XIRR do the maths for you.
For example, if you invested ₹5,000 monthly for three years and the final value is ₹2.1 lakh, XIRR tells you the true annual return, accounting for the fact that each instalment was invested for a different length of time — something a simple CAGR cannot capture.