If you’ve ever felt lost in the world of mutual funds, you’re not alone. Terms like rolling return might sound complex, but they hold the key to evaluating investments like a pro. This guide will walk you through rolling returns in mutual funds, using relatable examples to simplify your investment journey and highlight the value rolling returns add for mutual fund investors.
Understanding Rolling Returns with a Movie Example: Producing a Film with a Superstar
Imagine you’re a movie producer planning your next blockbuster. You’ve signed a superstar with a massive fan base, and everyone expects the movie to be a hit. But as a savvy producer, you know success isn’t just about the opening weekend—it’s about how the movie performs day after day. To evaluate the consistency of your star’s past performances, you decide to analyze rolling collections instead of point-to-point returns.
Rolling Collection Data
Here’s how your movie performed over its first 10 days in theaters:
- Day 1: ₹10 crore
- Day 2: ₹8 crore
- Day 3: ₹7 crore
- Day 4: ₹6 crore
- Day 5: ₹4 crore
- Day 6: ₹5 crore
- Day 7: ₹3 crore
- Day 8: ₹4 crore
- Day 9: ₹2 crore
- Day 10: ₹1.5 crore
Instead of looking at the total collection, you calculate performance in rolling time periods of 3 days.
Rolling Performance Analysis: Overlapping 3-Day Blocks
- Days 1-3: ₹10 + ₹8 + ₹7 = ₹25 crore
- Days 2-4: ₹8 + ₹7 + ₹6 = ₹21 crore
- Days 3-5: ₹7 + ₹6 + ₹4 = ₹17 crore
- Days 4-6: ₹6 + ₹4 + ₹5 = ₹15 crore
- Days 5-7: ₹4 + ₹5 + ₹3 = ₹12 crore
- Days 6-8: ₹5 + ₹3 + ₹4 = ₹12 crore
- Days 7-9: ₹3 + ₹4 + ₹2 = ₹9 crore
- Days 8-10: ₹4 + ₹2 + ₹1.5 = ₹7.5 crore
Interpreting the Data
Average, Maximum, and Minimum Returns:
- Average Collection: ₹14.81 crore
- Maximum Collection: ₹25 crore
- Minimum Collection: ₹7.5 crore
This analysis shows how consistent the movie’s collections are across different time frames, highlighting both strengths and weaknesses. Similarly, rolling returns in mutual funds help investors identify consistent performance across overlapping periods, providing more insights than average returns or trailing returns.
What Are Rolling Returns in Mutual Funds?
Similar to movies Rolling returns in mutual funds measure performance over overlapping periods, offering a more comprehensive picture of consistency than point-to-point returns. They calculate returns over multiple time frames, like 1 year, 3 years, or 5-year returns, providing valuable insights for mutual fund investors.
For example:
- January 2, 2023, to January 3, 2024
- January 3, 2023, to January 4, 2024
- January 5, 2023, to January 5, 2024
- …until November 20, 2023, to November 20, 2024
Since the start date for calculating rolling returns shifts daily, rolling returns are less biased by specific market conditions and provide a clearer picture of the fund’s performance across different market scenarios.
How to Calculate Rolling Returns
The formula to calculate the rolling returns of the scheme uses CAGR (Compound Annual Growth Rate). For example:
CAGR=(Start NAVEnd NAV)^(1/number of Years)−1
Let’s calculate rolling returns for this data:
| Start Date | Start NAV | End Date | End NAV | CAGR |
|---|---|---|---|---|
| 01-Apr-2005 | ₹1000 | 04-Apr-2006 | ₹2083.67 | 107.92% |
| 04-Apr-2005 | ₹1002.14 | 05-Apr-2006 | ₹2114.80 | 114.09% |
| 05-Apr-2005 | ₹987.79 | 07-Apr-2006 | ₹2075.62 | 108.01% |
For the first period:
CAGR=(2083.67/1000)^(1/11)−1 = 107.92%
Rolling Return vs Benchmark
When evaluating mutual fund performance, comparing rolling returns against a benchmark is crucial. It helps determine whether the fund consistently outperforms the market, providing better value to investors.
The primary reason investors pay a fund manager’s expense ratio is to outperform the benchmark. If a mutual fund fails to deliver this outperformance, it might be better to consider other investment options.
When selecting a mutual fund, comparing rolling returns across multiple funds provides deeper insights. For example:
Fund A may have high returns during bull markets but perform poorly in downturns.
Index may deliver steady returns across all market conditions.
Example:
Comparing the rolling returns of two indices over 1-year periods:
- Edelweiss Nifty 500 Multicap Momentum Quality 50:
- Average Return: 62.75%
- Maximum Return: 124.9%
- Minimum Return: -57.2%
- Nifty 500 Momentum 50:
- Average Return: 68.96%
- Maximum Return: 157.9%
- Minimum Return: -66.6%
Even though the Edelweiss Multicap Momentum Quality 50 index has lower average and maximum returns, its better performance during downturns showcases its ability to manage downside risk effectively. This adds significant value to the investor during volatile market conditions.
| 1 Year Rolling Returns | Nifty500 Multicap Momentum Quality 50 | Nifty 500 Momentum 50 |
| Total number of rolling return entries | 4602 | 4602 |
| Effective CAGR of average IRR (approximately same as average XIRR) | 25.98% | 28.06% |
| Maximum rolling return | 124.9% | 157.9% |
| Minimum rolling return | -57.2% | -66.6% |
| Chance of fund beating index (with rolling XIRR data) | 50.63% | |
| Total number of Average return entries | 1 | 1 |
| Average Returns | 62.75% | 68.96% |
Why Rolling Returns Are Better Than trailing Returns
Trailing returns or average returns only consider specific start and end dates, making them susceptible to market timing biases.
In contrast, rolling returns use overlapping periods(e.g., 4602 data points here), to analyze consistency across time period providing mutual fund investors with:
- A clearer picture of performance consistency compared with average or trailing returns.
- Insights into fund behavior across different market conditions.
- Better comparability against benchmarks.
Making Smarter Investment Decisions with Rolling Returns
How Rolling Returns Add Value
- Evaluate Consistency: Look for funds with steady rolling returns to minimize risk.
- Benchmark Comparison: Rolling returns highlight how often a fund beats its benchmark, adding value to the investor’s portfolio.
- Diversify Investments: Rolling returns help identify funds suited for different market conditions.
- Track Trends: Regularly reviewing rolling returns data ensures you spot underperformance early.
Where to Check Rolling Returns of Mutual Funds for free
If calculating rolling returns manually feels overwhelming, INVESTT provides a free and user-friendly mutual fund rolling return calculator. With this tool, you can:
- Compare the rolling returns of a mutual fund scheme with benchmarks and categories.
- Calculate rolling returns of benchmarks vs benchmarks to identify the best index funds.
iNVESTT rolling return calculator calculates the average, maximum, and minimum returns, compares them with the category, and helps you understand the fund’s performance over a specific period.
This ensures mutual fund investors have all the rolling return data they need to make informed decisions without manual calculations.
Key Takeaway
Rolling returns provide a comprehensive, unbiased view of mutual fund performance by analyzing overlapping periods. Compared to point-to-point returns, rolling returns offer better insights into a fund’s consistency, downside potential, and benchmark outperformance. By using tools like INVESTT’s rolling returns calculator, investors can make smarter, data-driven decisions, ensuring long-term success in their investment journey.
FAQs About Rolling Returns of Mutual Funds
1. What is rolling returns of mutual funds?
Rolling returns measure a mutual fund’s performance over overlapping time periods, such as 1-year, 3-year, or 5-year intervals. They provide a more consistent and unbiased view of how a fund performs across different market conditions.
2. How can rolling returns help in selecting the best mutual fund?
Rolling returns help identify consistency in a fund’s performance over time. By comparing rolling returns with benchmarks and peers, investors can select funds that deliver steady returns and outperform in varying market scenarios.
3. How do rolling returns differ from trailing returns?
- Rolling Returns: Analyze overlapping time frames (e.g., Jan 2020–Jan 2021, Feb 2020–Feb 2021).
- Trailing Returns: Measure performance from a specific date to today (e.g., Jan 2020 to now).
Rolling returns are more comprehensive and reduce biases from specific start and end dates.
4. Can there be negative returns on mutual funds?
Yes, mutual funds can deliver negative returns during market downturns. Rolling returns highlight such periods, helping investors understand the potential risks of a fund.
5. How to get rolling returns of mutual funds?
You can use online tools like a rolling return calculator, mutual fund websites, or platforms like INVESTT, which offer free rolling returns data for mutual funds and benchmarks.
6. What is the meaning of 5-year rolling average?
The 5-year rolling average is the average of all 5-year rolling returns calculated across multiple overlapping time frames. It helps gauge the fund’s average performance consistency over long-term periods.
7. What is the meaning of 5-year rolling return?
The 5-year rolling return measures the fund’s performance over 5-year intervals, calculated for overlapping periods. For example:
- Jan 2015–Jan 2020 (All dates in Jan)
- Feb 2015–Feb 2020 (All dates in Feb)
It indicates how consistently the fund performs over long-term horizons.
