Rolling return vs. Trailing return


Not every investor buys a mutual fund on the very 1st day of a year and holds for exactly till the end of the year or for fixed 3-5 year duration. Investors buy and sell at any given day throughout any given year.

Trailing returns are the most basic and widely-used measure of a funds historical performance. They measure total returns over
standardised time periods, usually with a recent ending date, making them easy to understand and readily comparable with a relevant index or peer group.

Trailing returns measure performance for just one block of time and in that
sense they suffer from a recent performance bias. It is determined by looking at the Net Asset Value of a mutual fund (the price) at the beginning of the time period compared to the end of the time and then determining the percentage change.

example: A 10-year trailing returns of a scheme, it shows the absolute increase in the investment in 10 years but one cannot measure how the scheme performed when there was fluctuation in the market during this period.

Rolling Returns is the average returns taken for a specified period on every day/ month/ quarter/ year till the last date of the transaction. Rolling returns calculate all of the periods starting not only in
January, but in every month. This method allows an investor to evaluate the consistency of a funds performance over time—including the ups and downs of market cycles, which are an important test of a fund managers skill. A study of rolling returns also shows whether a fund is a consistent performer or there is volatility in short periods.

example: A monthly five-year rolling returns starting from 30th April 2018. Thus the return will be calculated from 30th April 2018 to 31st March 2018, 29th April 2018 to 30th March 2018 and so on.

Advantages of Rolling Returns

  • Effective measure to evaluate the performance of mutual funds
  • Accurate
  • Not biased towards any period of time
  • Reliable way for investing
  • Proper insights for an investor
  • Good for a recurring (Monthly or Quarterly) or a SIP investor
  • Used for computing the mean return of the Mutual Fund

Graphical representation of a fund’s Rolling returns:

The above graph depicts the rolling returns of Mirae Asset India Equity fund (Erstwhile Mirae Asset India Opportunities Regular) from 30-April-2013 to 30-April-2018. The returns are compared with a benchmark, NIFTY 50. Various fluctuation periods can be observed in the graph. The fund experienced a steep decrease in returns from May 2013 till the end of August 2013 falling down to the minimum return of 0.87%. Post this period, the returns increased steadily & continuously, with the returns again decreasing from August 2016. Return was the highest on 8th September 2016 at 31.77%.

Such fluctuations measure the volatility in the market that help the investors in making right investment decisions and understand the market scenarios. From the above graph, Mirae Asset India Equity Fund has managed to beat the NIFTY 50 Index on every occasion. This shows the scheme’s ability to read and anticipate market conditions better, thus providing investors with good returns.

We compare Rolling return of 3 categories: Large, Mid & Small Cap with their Trailing returns.

We believe that rolling returns provide a particularly robust analytical tool for evaluating manager performance during volatile periods when simply shifting the performance date range one or two months in either direction can paint a very different picture.
Point-to-point returns can distort the view as return on a particular day is dependent on many factors and may not give a complete picture of fund performance. Expanding that return to every day of the period (rolling returns) shows how much the fund is able to deliver despite the market environment and external factors and whether or not returns remain smoothly on a line.

For complete Research Disclaimer,

Vatsal Shah | Head - Wealth Management

He has been in the field of financial advisory for more than 8 years. His strength is building relationships and providing innovative solutions to investments. His work involves managing the wealth management department for Mutual Funds, IPOs, Bonds and Insurance.

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