Rolling Returns Of Mutual Funds

Mutual Funds are a great investment option for people who look for good returns with fewer risks. They diversify the unsystematic risks of individual stocks by investing in various stocks across sectors. But, to get these benefits, you must first invest in the right mutual funds.

The search for a growing mutual fund always starts by comparing returns. It evaluates the past performance of a fund using historical data. While there are many kinds of returns, one of them is used extensively to assess a fund's performance. It is called the Rolling Returns of mutual funds.

What are Rolling Returns of mutual funds in India?

Rolling returns are annualized average returns over a specific period of time, ending with the listed year. To elaborate further, it gives an investor insight into how ‘n’ years of returns have evolved over the ‘n’ years. This data is essential to determine the returns' characteristics over a holding period.

How to check Rolling Returns of mutual funds?

To compare Rolling Returns of mutual funds, use the Net Asset Value (NAV) data of a mutual fund over a period and calculate the returns on a continuous basis. Sounds confusing? Let’s understand it with the help of an example.

Suppose you have the NAV data of five years for a mutual fund, say from 1st January 2015 to 1st January, and you need to calculate the two-year rolling return for the same.

So, the first cycle of rolling return is calculated as the CAGR of NAVs between 1st January 2015 and 1st January 2017. The next cycle is from 2nd January 2015 to 2nd January 2017. And so on, until the ending date of a cycle is 31st December 2019.

If you check Rolling Returns of mutual funds using this method, you will get a series of data instead of getting a single return value. You can then use the values to compare them with a scheme or additional benchmarks.

For example, if you want to find out the possibility of getting more than an 8% return on a mutual fund. Check rolling returns of mutual funds and then use the percentage method to assess how often the fund has delivered a return of more than 8% in the past.

How to check Rolling Returns of mutual funds online?

If you are unaware of how to check Rolling Returns of mutual funds, do not worry. Many financial institutions provide these data online to compare Rolling Returns of mutual funds. You can use these databases to get instant results by following a few simple steps.

Step 1: Search for the mutual fund scheme name for which you want to calculate returns.

Step 2: Choose a start date for the calculation of returns.

Step 3: Select a period for calculating the returns, like three months, one year, five years, etc.

Step 4: Although the representation may vary, most websites will show you a data table displaying the Rolling Returns for different periods.

Importance of rolling returns for mutual fund analysis

Rolling returns are crucial for analyzing mutual funds for several reasons:

Spotting consistent performers: Rolling returns help identify mutual funds that consistently perform well over various periods, providing a clearer picture of their long-term reliability.

Comparative analysis: By analyzing funds over the same rolling periods, investors can make fair comparisons between different funds, ensuring a more accurate assessment.

Simplified risk assessment: Rolling returns reveal how a fund behaves in different market conditions, simplifying the process of evaluating its stability and resilience, and helping investors make informed decisions.

How to calculate rolling returns in mutual fund?

To calculate rolling returns in mutual funds, start by defining your investment horizon and selecting your preferred review intervals (weekly, monthly, or quarterly). Let's understand this with an example.

Suppose you want to invest in mutual funds for 10 years and decide to analyse rolling returns on a monthly basis. This will generate 120 sets of rolling returns. Each set would represent the fund's performance over the past 12 months. By examining all 120 sets of rolling returns, you can assess how consistently the mutual fund has performed over time, rather than just looking at a single period.

Why are rolling returns of mutual funds in India important for fund evaluation?

Calculating the Rolling Returns of mutual funds in India has many advantages, making it an essential factor in assessing mutual funds for investment. Some of them are:

- Rolling returns of mutual funds do not use one point-to-point basis to determine the performance of a mutual fund. Instead, a continuous evaluation over a period gives a clearer picture.

- Rolling Returns of mutual funds help us factor in the volatility of the fund. You can evaluate how many cycles the fund produced a positive return or how many times it took a dip over a period.

- You can calculate the Rolling Returns of mutual funds for any period. Be it three months, six months, three years, or ten years.

- The figures of Rolling Returns of mutual funds give a more accurate representation of the fund’s performance as they are not biased on a period chosen by the company.

How are rolling returns different from other returns?

Apart from Rolling Returns, two other major parameters that gauge the performance of a mutual fund are Annual and Trailing Returns.

Annual Return is the growth of investment value in a year, calculated by considering the effect of the compounding interest rate. This is a common way of comparing mutual funds, mainly because many new investors are unaware of how to find rolling returns of mutual funds.

Like Rolling Returns, they also help evaluate a fund's performance consistency. However, a severe limitation with Annual Returns is a high chance of recency bias, making investors give more importance to near-term results rather than a series of results over a period.

On the other hand, Trailing Returns help investors calculate the average return of a mutual fund between two dates without considering its annual performance. This helps smooth out the fund’s performance over time and provides a broader picture for investments.

However, Trailing Returns fails to reveal the path the mutual funds took over the period. For example, A and B are two mutual funds with the same start and end NAVs for a particular period. In that case, their Trailing Return value will be the same irrespective of the volatility they have shown over the period.

By learning how to check the rolling returns of mutual funds, you can get a more comprehensive view of a mutual fund’s consistency irrespective of the time scale. So, anybody who wants a realistic projection of a fund’s future performance can compare the Rolling Returns of mutual funds. It helps investors manage their expectations and make data-based decisions about their investments.

In Conclusion

Rolling returns of mutual funds in India are a valuable metric to gauge the volatility of your investments. Also, several other benchmarks like trailing or annual returns assess different aspects of a mutual fund. Together they help investors pick the most suitable mutual fund for their investments.

So, do thorough research on how to find Rolling Returns of mutual funds using various smartphone apps such as Moneyfy's mutual fund app which are provided by financial institutions and reduce the risks on your mutual fund investments.

Frequently asked questions

1. What's a 3-year rolling return?

A 3-year rolling return measures the performance of an investment over a 3-year period. For example, if you want to calculate a 3-year rolling return starting from January 2020, you would look at the return from January 2020 to January 2023. 

2. How to calculate 5-year rolling returns?

Similar to 3-year returns, 5-year rolling returns calculate the annualised return for every month for 5 years. You can easily calculate it using online calculators.

3. Which mutual fund has the best rolling return?

The mutual fund with the best rolling return varies based on the timeframe and market conditions. To identify the fund with the best rolling return, you need to compare the rolling returns of various funds over the same period.

4. What is the rolling return of Nifty 10 years?

You can check the rolling return of the Nifty 50 index for the last 10 years on stock market portals and financial websites.