Know about What are Rolling Returns, Calculation & Advantages

Rolling Returns and Trailing Returns are two of the ways using which you can evaluate the performance of a fund. While Trailing Returns are time-specific, Rolling Returns use a time-dynamic approach to measure returns.

Let us know more about what are rolling returns, how are they calculated and more-

What are Rolling Returns?

Rolling Returns are used to evaluate the performance of one or more funds over a period of time. These are also known as Rolling Period Returns or Rolling Time Periods. Unlike Trailing Returns, these are more concentrated on the holding period rather than on the time of entry & exit into a scheme.

Under Rolling Returns, the performance of the funds are measured on absolute as well as relative basis at regular intervals. This indicates that Rolling returns categorize the returns at various time intervals, for example: returns for every 3 months from 2011 to 2016 or 6 month returns from 2009 to 2019. The process takes several such intervals of 3/5/10 years in order to examine the performance over a period of time.

To have a better understanding of Rolling Returns, you must also know what Trailing Returns are and how the two differ from each other.

• Trailing Returns are calculated on a ‘Point-to-Point’ basis and then annualised
• They provide the investors with an overall idea of whether a fund has created wealth or depleted wealth over a specific period
• These returns are very much concentrated on the ‘entry’ and ‘exit’ time of an investment instead of focusing on the ‘holding period’

How are Rolling Returns calculated?

As discussed already, Rolling Returns are more time dynamic and sensitive. They focus on delivering a transparent picture of the returns accrued irrespective of the time of entry and time of exit in a scheme. The calculation of Rolling Returns is carried out in two ways:

1. Deciding the overall time period of calculation of returns
2. Finalising the intervals on which the returns would be considered

These two ways are directly linked to each other. The intervals are finalised depending upon the time period for which you want to evaluate the returns. 

For instance, you want to calculate rolling returns for 5-year interval series starting from 1st April 2000, for an overall investment period of 15 years. Now, the returns would be calculated from:

• 1st April 2000 to 31st March 2005
• 1st April 2005 to 31st March 2010
• 1st April 2010 to 31st March 2015, and so on.

For example, Mr. A bought a fund one year ago for Rs.200 and sold it today for Rs.210. If he calculates the Trailing Returns, the result would be 10%. But, if the value of the fund drops down to Rs.208. Now, his Trailing Returns would not be accurate for the period of 1-year. However, using Rolling Returns would give him more accurate results by taking the fluctuations in consideration and calculating returns over different intervals, 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.

Advantages of calculating Rolling Returns for fund evaluation

Using Rolling Returns to evaluate the performance of a fund is considerably more convenient than Trailing Returns. Here is how they benefit the fund managers and investors in calculating the returns-

• Trailing Returns calculate historical returns on a point-to-point basis. Consequently, an investor may end up investing in a mutual fund which may have performed well at a particular point of time but may not be the ideal scheme. In that case, Rolling returns give a clearer and more consistent picture of the fund’s performance
• One can use different intervals- 3 year, 5 year or 10 year period to see the highest, lowest and average returns accrued by a fund over that specific period
• For the purpose of comparing two mutual funds according to their performance over longer periods of time, Rolling Returns present a peculiar insight of the market condition and fund’s performance as compared to Trailing Returns
• With the regular and equated examination performed by rolling returns, the calculation of fund performance becomes much more accurate
• The returns are calculated thoroughly over all the time periods which ensure no bias calculation over any period of time. While you are planning to begin with your investments, using Rolling Returns is more reliable than Trailing Returns
• These also compute the mean returns of any mutual fund which further suggests the investors about the goodwill & consistency of a fund

Difference Between Trailing and Rolling Returns

Trailing returns, also known as point-to-point returns, is another method of examining the performance of a mutual fund keeping a past specific date or period as the basis of calculation. This is more focused on the entry and exit time in an investment to calculate the returns. It is acknowledged as an accurate method to calculate the most recent financial data of a mutual fund.

For example, if you bought a mutual fund, one year ago for Rs 300 and sold it today at Rs 310, your point-to-point return or trailing return is 10%. But, what if there are some fluctuations in the value of the fund? This method would then be vulnerable and may give inaccurate results.

In the above example, assume that the fund value drops to Rs 307 tomorrow – your point-to-point return is no longer accurate for a 1 year period. On the other hand, rolling return will consider this fluctuation. It will examine returns between say, 1st Jan to 1st Feb, 2nd Jan to 2nd Feb, 3rd Jan to 3rd Feb and take the average of these returns, thereby giving a more accurate result.

• In case the Rolling Returns and Trailing Returns are somewhat similar over a longer period of time, it denotes that the fund has performed consistently and the entry and exit time is not too reproving
• Most of the investors believe in investing via Systematic Investment Plans (SIP) at regular intervals. In that case, Rolling Returns are considered more workable and credible
• When you take a longer period of time to evaluate the performance of a fund, Rolling returns are more absorbing to the fluctuations in the market as compared to Trailing Returns

In a nutshell, if you calculate the Trailing Returns, you will be able to evaluate how the fund has performed in the long run from one date to another date. But, how will you determine the consistency of the fund and how your fund has performed in bad or good times? Here is where Rolling Returns outperform Trailing Returns. Rolling Returns helps you assess and estimate the overall performance of a fund over a time period at specific intervals which provide the investor with more accurate data.

Here is a List of Major Large Cap Funds You can Invest in FY 2020:

Fund	1 year rolling return	3 year rolling return	1 year trailing return	3 year trailing return
Mirae Asset Largecap Fund(G)	3.29%	13.23%	0.75%	11.20%
Axis Bluechip Fund(D)	3.35%	14.28%	0.73%	12.56%
ICICI Prudential Bluechip Fund(G)	0.51%	10.77%	-2.11%	8.77%
Aditya Birla Sun Life Frontline(G)	-1.30%	8.25%	-3.95%	6.55%
SBI Bluechip FundG)	1.33%	8.39%	-2.42%	6.39%
Nippon Large Cap Fund(G)	3.53%	12.81%	-0.24%	10.19%
HDFC Top 100 Fund(G)	6.85%	12.59%	3.24%	10.17%
Franklin India Bluechip Fund(G)	3.40%	6.30%	-5.75%	4.24%
Kotak Bluechip Fund(G)	1.05%	8.52%	-4.34%	6.46%