Rolling Returns: Definition, Example, and How To Analyze

Rolling returns are important aspects to consider when it comes to mutual fund investments. These returns provide an overall view of how a mutual fund has performed over different time periods and offer valuable insights into the fund’s historical performance.

This article will explore the concept of rolling returns with illustrative examples. It will also elaborate on how to analyse these returns effectively.

What Are Rolling Returns?

Rolling returns means using a smart way to track the performance of your Mutual Fund over time. It checks the returns across multiple periods rather than between just two fixed dates. This way, you can get a picture of how the fund performed across various periods.

It can help you analyse how consistent the fund’s performance is in all kinds of market conditions. With this, you can get better clarity than just looking at returns from a single start and end date.

How To Analyse Rolling Returns

Let us understand how to analyse rolling returns effectively

Time frame and frequency

The time frame and frequency for calculating rolling returns depend on your investment goals and horizon. For long-term investments such as retirement planning, you may opt for 3-year or 5-year returns. Short-term investments will involve daily or weekly rolling returns.

Consider dividends and fees

To ensure accurate calculations, adjusting your returns for dividends received and fees paid during the investment period is important. Reinvest dividends and subtract the fees from the returns to know the net performance of the investment.

Mean return analysis

Calculating the mean return involves adding all the returns over a specific period and dividing the same by the number of time intervals. This provides insights into the average returns you can expect from your investments over time.

Standard deviation assessment

Standard deviation measures the volatility of the returns from your investments. A higher standard deviation indicates greater volatility and risk. It helps you assess how risky the investment is.

Risk-adjusted returns

Evaluating risk-adjusted returns involves taking the standard deviation of the returns and adjusting the same accordingly. It allows you to compare different investments with varying levels of risk, helping you identify the best investment for the risk you are willing to take.

Time horizon considerations

The time horizon you choose significantly impacts the analysis of rolling returns. Longer time horizons provide a more accurate picture of the fund’s performance whereas shorter ones may be more volatile and unpredictable.

Importance of rolling returns for mutual fund analysis

Rolling returns of mutual funds are important and offer several benefits

Assessing consistency

By analysing rolling returns, investors can identify mutual funds that have consistently delivered favourable returns over different periods. This helps in making informed investment choices.

Comparative analysis

Investors can use rolling returns to compare the performance of different mutual funds across different time horizons. This allows investors to select the most suitable fund for their investment objectives.

Assessing consistency

By analysing rolling returns, investors can identify mutual funds that have consistently delivered favourable returns over different periods. This helps in making informed investment choices.

Risk evaluation

Risk-adjusted returns calculated by analysing rolling returns allow investors to assess the risk levels associated with different mutual funds. This process of risk evaluation helps in aligning investments with risk tolerance.

How to Calculate Rolling Returns in Mutual Funds?

The process of calculating rolling returns is easy and it generally involves checking how a fund performs over fixed time frames. Learn how you can do it:

1. Start by choosing a start date.

2. Select a time period between 1 year, 2 years, etc.

3. Take the date forward and calculate returns for each.

4. In the end, average all the results.

Applications of Rolling Returns

Rolling returns help Mutual Fund investors in many ways:

• The rolling returns reflect the steadiness of a fund over time. This way you can stay away from misleading short-term results.

• You also get to compare multiple funds at the same time and finally pick the most reliable ones.

• It also assists in planning how long to hold a fund based on past performance windows.

• Rolling returns also allow you to match fund performance with your risk appetite and financial goals.

• You get to compare your fund’s results against other options.

How Can Rolling Returns Be Used to Compare Mutual Funds?

Rolling returns let you compare Mutual Funds more effectively by focusing on how consistently each fund performs across different periods. You don’t just look at one-time returns—you check how they hold up year after year. It helps you find funds that are steady and reliable, even during changing market conditions.

When comparing two or more Mutual Funds, rolling returns show which ones have better long-term performance. This gives you a clearer picture than simple point-to-point returns and helps in choosing the right fund that matches your investment goals and comfort with risk.

Rolling returns vs point-to-point returns

Some of the differences between rolling returns and point-to-point returns include

Volatility

Point-to-point returns can be more volatile as they consider returns at specific points in time, which may not represent overall performance accurately. Rolling returns, on the other hand, provide a more accurate view of performance over continuous periods.

Historical returns

Point-to-point returns offer insights into the fund’s performance over a fixed period while rolling returns consider performance over various periods. This makes rolling returns more suitable for historical performance analysis.

Accuracy

Rolling returns are considered more accurate for performance analysis because they provide a more comprehensive view of returns over time. They are less likely to be affected by extreme market conditions.

Using rolling returns for informed investment decisions

Rolling returns provide valuable information to investors for making informed investment decisions. Whether you are a seasoned investor or just beginning your investment journey, the insights gained from analysing rolling returns can guide your choices, aligning your investments with your financial goals.

Rolling returns are essential for understanding the historical performance of a mutual fund. They offer a broader view of investment returns over different time periods. Investors can make the most of rolling returns by considering factors such as time frame, dividends, fees and risk-adjusted returns to build a diverse and goal-oriented investment portfolio.

FAQs

What is a 5 year rolling return?

A 5 year rolling return means calculating the average return of a Mutual Fund for every 5 years period. With this, you can analyse the stability of checking performance across overlapping periods, offering a clear picture of long-term stability.

What is a rolling return example?

Suppose you check a fund’s 3-year rolling returns from 2018 to 2023. You calculate returns for 2018–2020, 2019–2021, 2020–2022, and 2021–2023. This shows how the fund performed in each window, helping you understand consistency and performance trends across multiple time frames.

What is the difference between rolling and annualised returns?

Rolling returns measure fund performance over multiple overlapping periods, showing consistency over time. Annualised returns, on the other hand, reflect the average yearly return over a single period. Rolling returns offer better insight into long-term stability, while annualised returns show overall growth during a fixed duration.