What are Rolling Returns in Mutual Funds? Complete Guide for 2024

Investing in mutual funds requires understanding various performance metrics to make informed decisions. One such powerful metric is Rolling Returns, which provides a more consistent and comprehensive analysis of mutual fund performance compared to simple point-to-point returns. This detailed guide explores the concept of rolling returns, how they are calculated, and their significance for mutual fund investors in the Indian share market.

Introduction to Rolling Returns
How to Calculate Rolling Returns
- Formula and Example
- Historical Data on Rolling Returns for Indian Mutual Funds
Why Rolling Returns Are Important
Comparing Rolling Returns with Other Performance Metrics
- Rolling Returns vs Point-to-Point Returns
- Rolling Returns vs Trailing Returns
Types of Rolling Returns
- Daily Rolling Returns
- Monthly Rolling Returns
- Annual Rolling Returns
Case Study: Rolling Returns for Popular Indian Mutual Funds
- Table: Rolling Returns for Top 5 Mutual Funds (2020-2024)
Limitations of Rolling Returns
How to Use Rolling Returns for Investment Decisions
Conclusion: Key Takeaways for Investors

1. Introduction to Rolling Returns

Rolling returns provide a comprehensive way to evaluate the performance of mutual funds over multiple periods, offering a better perspective than just looking at annual or point-to-point returns. While most investors look at returns over fixed time periods, rolling returns offer a series of returns for overlapping periods, which is more representative of the fund’s overall performance consistency.

For example, if you want to measure the performance of a mutual fund over the last 5 years, instead of only looking at the start and end points, rolling returns would calculate performance over multiple overlapping periods, such as every month within the 5-year window.

2. How to Calculate Rolling Returns

Formula and Example

The formula for calculating rolling returns is:

Rolling Return=(Ending NAV/Beginning NAV−1)×100

Where:

Ending NAV is the Net Asset Value at the end of the specific rolling period.
Beginning NAV is the Net Asset Value at the start of the rolling period.

Example:

Let’s say you are calculating the 1-year rolling return for a mutual fund for each month from 2019 to 2024. If the NAV on January 1, 2020, was ₹150 and the NAV on January 1, 2021, was ₹165, the rolling return for that 1-year period would be:

Rolling Return=(165/150−1)×100=10%

Now, you would repeat this calculation for every month between 2019 and 2024 to get a comprehensive view of the fund’s performance.

Historical Data on Rolling Returns for Indian Mutual Funds

Year	Rolling Period	NAV Start (₹)	NAV End (₹)	Rolling Return (%)
2020	Jan 2020 – Jan 2021	150	165	10%
2021	Jan 2021 – Jan 2022	165	180	9.1%
2022	Jan 2022 – Jan 2023	180	190	5.6%
2023	Jan 2023 – Jan 2024	190	205	7.9%

3. Why Rolling Returns Are Important

Rolling returns provide a more accurate assessment of a fund’s performance because they account for fluctuations over time rather than relying on a single snapshot. Some of the benefits of using rolling returns include:

Consistency: Rolling returns show how consistently a fund has performed over different time periods.
Smoothing Out Volatility: It averages out periods of high or low performance, providing a clearer picture of long-term performance.
Better for Comparisons: It allows investors to compare funds over multiple periods, making it easier to assess consistency in performance.

4. Comparing Rolling Returns with Other Performance Metrics

Rolling Returns vs Point-to-Point Returns

Point-to-point returns measure the return from a specific start date to an end date. While easy to calculate, they can be misleading if the start or end dates coincide with a period of unusual market volatility.

Rolling returns, on the other hand, provide a more balanced view as they calculate returns over overlapping periods, reducing the impact of any one-time market event.

Metric	Rolling Returns	Point-to-Point Returns
Consistency	High, as it averages over multiple periods	Low, as it is based on a single period
Accuracy	More accurate for long-term analysis	May be distorted by market volatility
Volatility Impact	Smoother due to averaging	High, depending on start and end points

Rolling Returns vs Trailing Returns

Trailing returns measure the return over a fixed period ending on the most recent date (e.g., 1-year, 3-year, 5-year). While useful, trailing returns are backward-looking and only focus on one fixed period.

Rolling returns offer a more comprehensive view by calculating returns across multiple periods, giving a better sense of how the fund performs over time.

5. Types of Rolling Returns

There are different types of rolling returns based on the time interval you choose. The most common types include:

Daily Rolling Returns

These are calculated daily, providing the most granular view of performance. However, they are sensitive to short-term market fluctuations and may be too volatile for long-term investors.

Monthly Rolling Returns

Monthly rolling returns smooth out daily volatility and offer a balanced view of performance over time. These are the most commonly used for assessing mutual funds.

Annual Rolling Returns

Annual rolling returns show performance over a 1-year rolling period. They are useful for long-term investors who are looking for consistency over the years.

6. Case Study: Rolling Returns for Popular Indian Mutual Funds

Let’s examine rolling returns for some popular Indian mutual funds over the past five years (2020-2024). This will help demonstrate how rolling returns provide insight into the fund’s performance across different market conditions.

Fund Name	2020 Rolling Return (%)	2021 Rolling Return (%)	2022 Rolling Return (%)	2023 Rolling Return (%)	2024 Rolling Return (%)
HDFC Top 100 Fund	9.8%	10.2%	7.9%	8.5%	10.1%
SBI Magnum Multicap Fund	8.5%	9.0%	6.7%	7.3%	9.0%
ICICI Prudential Bluechip	10.5%	11.0%	8.9%	9.7%	10.3%
Axis Long-Term Equity Fund	12.3%	13.0%	10.5%	11.0%	12.2%

7. Limitations of Rolling Returns

Despite the many advantages, rolling returns have their limitations:

Data-Intensive: Calculating rolling returns requires a lot of data, making it difficult for some investors to compute.
Not Future-Oriented: Like all historical metrics, rolling returns don’t predict future performance. They can only provide a view of past consistency.
Complexity: For beginner investors, rolling returns can be a bit complex compared to more straightforward metrics like point-to-point returns.

8. How to Use Rolling Returns for Investment Decisions

Rolling returns are especially helpful for comparing the performance of mutual funds within the same category. Here’s how you can use rolling returns for investment decisions:

Consistency Check: Choose funds that have shown consistent rolling returns over the years. This indicates that the fund is less affected by market volatility.
Compare Funds: Use rolling returns to compare the performance of different mutual funds within the same category. This will give you a better idea of which fund is more reliable.
Monitor Performance: Rolling returns can help you track how your chosen mutual fund is performing over time, allowing you to make better decisions about when to invest more or redeem units.

9. Conclusion: Key Takeaways for Investors

Rolling returns provide a comprehensive and consistent way to evaluate the performance of mutual funds, especially in volatile markets. By analyzing returns over multiple periods, rolling returns smooth out short-term market noise, offering investors a clearer picture of how a mutual fund has performed over time.

For Indian share market mutual funds, understanding and utilizing rolling returns can help make better-informed investment decisions. By focusing on consistency and reliability, rolling returns ensure that your portfolio remains resilient, no matter the market conditions.