Rolling returns is a method used to analyze the performance of an investment over a certain period, which rolls or shifts over time. Unlike point-to-point returns, rolling returns provide a broader perspective on an investment’s performance by considering multiple time frames, which can give a more accurate reflection of an asset’s historical performance.
Contents:
- What Is Rolling Return?
- What are the advantages of Rolling Returns?
- What are the Limitations of Rolling Return?
- What are Rolling Returns Vs Trailing Returns?
- How To Calculate Rolling Returns Of Mutual Funds?
- What Is Rolling Return – Quick Summary
- Rolling Returns – FAQs
What Is Rolling Return?
A Rolling Return represents the average annualized return calculated over a specific period, which concludes at a given month or year and initiates X years before the last day of that month or year. This method of assessing returns unfolds a layered understanding of how returns have evolved over time.
For instance, a 3-year rolling return will calculate the annualized return over the past three years, month by month, providing a series of snapshots of a fund’s performance over time.
Let’s consider a mutual fund that has been operating for 10 years. To calculate the 3-year rolling return, we would start by calculating the annualized return from year 1 to year 3, then from year 2 to year 4, and so on, until we reach the last three-year period from year 8 to year 10. This provides a series of 3-year returns, which can be analyzed to observe trends or consistency in performance.
What are the advantages of Rolling Returns?
The main advantage of rolling returns is that they provide a clearer picture of an asset’s performance over time, removing the effects of a particularly good or bad year that could skew the results.
More such advantages are given below:
- Better Analysis: Provides a more robust analysis by considering multiple periods.
- Removes Bias: Minimizes the bias that can occur with point-to-point returns.
- Consistency Check: Allows investors to check the consistency in performance.
- Historical Performance: Gives a better understanding of historical performance.
- Decision-Making: Aids in better decision-making for investors.
What are the Limitations of Rolling Return?
A significant limitation of rolling returns is that they require a longer data history to be effective, which may not always be available.
More such limitations are given below:
- Data Intensive: Requires a lot of data that might not be available for newer funds or assets.
- Time Consuming: The calculations can be time-consuming and a bit complex.
- Not Predictive: Does not predict future performance but only analyzes past data.
What are Rolling Returns Vs Trailing Returns?
The primary difference between Rolling Returns and Trailing Returns is that Rolling Returns provide a more comprehensive view by assessing performance over multiple overlapping periods, while Trailing Returns consider a single, fixed period leading up to the present.
| Parameter | Rolling Returns | Trailing Returns |
| Time Frame | Multiple overlapping periods are considered, e.g., monthly rolling returns over a three-year period. | A single fixed period is considered, e.g., the past 1-year, 3-year, or 5-year period leading up to the present. |
| Insights Provided | Offers a deeper understanding of an investment’s performance over time by showcasing how returns have fluctuated. | Provides a snapshot of recent performance, which can be more influenced by short-term market conditions. |
| Calculation Complexity | Relatively complex as it involves multiple calculations for each rolling period. | Simpler, as it requires just one calculation based on the chosen fixed period. |
| Bias | Minimizes recency bias by considering multiple periods. | More susceptible to recency bias as it considers only the most recent period. |
| Usefulness | Highly useful for analyzing the consistency and historical performance of an investment. | More useful for understanding recent performance trends. |
How To Calculate Rolling Returns Of Mutual Funds?
Understanding Rolling Returns is pivotal for investors looking deeper into a mutual fund’s historical performance. Here’s a simplified step-by-step approach:
- Select the Rolling Period: Determine the rolling period (e.g., 3 years, 5 years).
- Identify the Frequency: Decide on the calculation frequency (e.g., daily, monthly).
- Calculate Annualized Returns: For each sub-period within the rolling period, calculate the annualized return.
- Shift the Period: Move the sub-period by the chosen frequency (e.g., move one month ahead if calculating monthly rolling returns) and calculate the annualized return for the new sub-period.
- Repeat: Continue this process until you have covered the entire data range.
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, commodity and hence we bring you the important topics and areas that you should know:
What Is Rolling Return – Quick Summary
- Rolling Returns give a more detailed look at how an investment has done over several different time periods while Trailing Returns only show a single period at a time.
- It helps in decision-making by offering robust analysis, removing biases, and providing a clearer understanding of historical performance.
- It requires a longer data history, can be time-consuming, and doesn’t predict future performance.
- To calculate, choose a rolling period, identify calculation frequency, calculate annualized returns for each sub-period, shift the period, and repeat until the entire data range is covered.
- Unlike trailing returns, which are simpler but more prone to recency bias, rolling returns provide a more reliable method for analyzing long-term performance trends.
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Rolling Returns – FAQs
Rolling Returns in mutual funds are average annualized returns calculated over successive periods, providing a detailed view of performance across different market conditions, unlike single-point returns.
The calculation of Rolling Returns involves a systematic approach:
- Selection of Rolling Period
- Determination of Frequency
- Initial Calculation
- Shifting the Period
- Continued Calculation
Calculating Nifty 50’s rolling return involves analyzing historical NAV data, like UTI Nifty 50 Index Fund’s, showing returns of 14.32% (1yr), 20.17% (3yr), 14.79% (5yr).
The core distinction between Rolling and Trailing Returns is that Rolling Returns evaluate performance over multiple overlapping periods, providing a well-rounded view of historical performance, Trailing Returns consider a single fixed period leading up to the present, offering a snapshot of recent performance.
Rolling returns measure mutual funds’ annualized returns across various dates within a set tenure, providing consistent performance analysis over time.
| Mutual Fund Name | AUM (Rs. in cr.) | CAGR 3Y (%) |
| Nippon India Large Cap Fund | 15,855.03 | 31.65 |
| HDFC Top 100 Fund | 25,422.81 | 28.25 |
| ICICI Pru Bluechip Fund | 40,285.71 | 25.66 |
| Mahindra Manulife Large Cap Prima Fund | 260.78 | 24.92 |
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