Trailing and Rolling Returns fundsinstructor.com

There are two ways to get the returns in percentage of mutual funds performance in the current market.

Trailing Returns

The above-said returns measure the performance of a mutual fund for the past specific periods, such as a one-year, three-year, five-year, or inception-to-date basis.

In other words, trailing returns is the calculation of point-to-point returns and then annualizing them, thus also called Point to Point Returns.

This measure provides a more transparent image as compared to absolute returns as a mutual fund might have performed especially well over ten years, but it might have sedated growth in the last few years.

Features of Trailing Returns

1. Most relevant performance parameter for mapping mutual fund performance
2. Used historical data for a block of period
3. Easy availability of data at any point of point

Formula to Calculate
(End Value/Start Value) ^(1/Years)-1

For example, let’s say a fund started with a value of ₹100 on January 1, 2010, ended with NAV of ₹200 on January 1, 2014.

Then year-on-year return will be 18.92% compounding return till January 1, 2009.

This means that from January 1, 2010, to January 1, 2014, your investment has grown to ₹118.9, a result of [100+(100*18.92 %)].

Thus, next year on January 1, 2011, return might be ₹ 118.9 + 18.92 % of 118.9 = Rs.141.39 and so on.

Rolling Returns

Rolling return is the annualized average return for the selected period ending with the listed year.

This method also called “rolling period returns” or “rolling periods”.

Rolling returns are useful for examining the behavior of returns for holding periods, similar to those experienced by investors.

Rolling return method provides a more accurate image of a portfolio’s performance as the return is calculated on a daily basis for the period under observation rather than being dependent on any specific time frame.

Features of Rolling Returns

1. It helps to compute the performance of mutual funds.
2. It is a reliable way of investing.
3. Rolling Returns provides the proper insights for an investor.
4. Good for a recurring or a SIP investor
5. It is used for computing the mean return of the Mutual Funds.

For example, If an investor bought a fund one year ago for ₹100 and sold it today for ₹110. If he calculates the Trailing Returns, the result would be 10%.

But, if the value of the fund drops down to ₹108. Now, his Trailing Returns would not be accurate for the period of 1-year.

Thus, the rolling return will consider this fluctuation.

By using Rolling Returns would give him/her more accurate results by taking the fluctuations in consideration and calculating returns over distinct intervals and it will consider returns between say, 1st Jan to 1st Feb, 2nd Jan to 2nd Feb, 3rd Jan to 3rd Feb and so on to finally draw the average of these returns.