There are 2 ways to evaluate or get the returns percent of a mutual fund performance in the current market.
1. Trailing returns
2. Rolling returns
Lets understand the two in detail with examples of Return percent of few mutual funds :
Trailing Returns
Trailing returns are the returns for past specific periods; for example as of a specific date the most recent year to date, 1 yr, 3 yr, etc. returns, hence are also called a point to point returns. Trailing returns are the most relevant measure to evaluate the performance for a mutual fund. With trailing returns, you can see a very good 10 yr performance but a not so good 1 year or 5 year performance
They tend to assume that investor is investing for once in the block whereas we can invest in each month , quarter, half yearly or yearly. The calculation of the return consists of the change in share price over a recent period of time plus any dividends earned per share over the period of time.
Features of Trailing returns
Most relevant – Used by mutual funds to publish performance over different time blocks
1.Historical data is used for a block of period
2.Data is easily present at any point of time
Examples of Trailing returns
1.Tax saving ELSS Funds returns till Feb 2018
| Trailing Return % | ||||
| Scheme / Category Name | 3 Month | 1 year | 3 years | 5 Years |
| Axis Long Term Equity Fund – Growth | 0.50% | 21.60% | 9.10% | 22.80% |
| SBI Magnum Tax gain Scheme 1993 – Regular Plan- Growth | -2% | 16.40% | 7.10% | 17.10% |
| Aditya Birla Sun Life Tax Plan – Regular Plan – Growth Option | -0.40% | 25.80% | 11.30% | 21.10% |
| ICICI Prudential Long Term Equity Fund (Tax Saving) – Growth | 0.30% | 12.50% | 7.60% | 17.80% |
| HDFC TaxSaver-Growth Plan | -3.50% | 17.10% | 8.90% | 18.20% |
Rolling Returns
Technically speaking, rolling returns are the average annualized returns taken for a specified period on every day/week/month and taken till the last day of the duration. It measures the funds absolute and relative performance over a period of time at regular intervals.
For example : Between time periods at various intervals: Return every 3 months 2010-2015 or returns every 6 months from 2008-2018
Rolling returns take several such blocks of 3 or 5 or 10 year periods at various intervals and see how that mutual fund performed over that period which makes this return more indicative of the actual performance of the fund. Due to different time periods, the return consistency of the fund over the period can be analysed as it takes into consideration both the upside and the downside in the market .
For example, if you have three year investment horizon (holding period) and want to see rolling returns of a mutual fund scheme from 1/1/2006 to 1/1/2016, you start by calculating annualized return from 1/1/2006 to 1/1/2009 (change in NAV between 1/1/2006 to 1/1/2009, annualized). Next calculate the annualized return from 2/1/2006 to 2/1/2009, then from 3/1/2006 to 3/1/2009, so on so forth.
Advantages of Rolling Returns
1.Effective measure to evaluate the performance of mutual funds
2.Accurate
3.Not biased towards any period of time
4.Reliable way for investing
5.Proper insights for an investor
6.Good for a recurring (Monthly or Quarterly) or a SIP investor
7.Used for computing the mean return of the Mutual Fund
Examples of Rolling returns in Mutual Funds
Small And Mid cap Funds – Start date 1 April 2014 – Rolling returns for period of 3 years at an interval of 3 months :
| Key Parameters (Return %) | Return Consistency (% of times) | |||||||||
| Scheme / Category Name | Average | Median | Maximum | Minimum | Less than 0% | 0 – 5% | 5 – 10% | 10 – 15% | 15 – 20% | Greater than 20% |
| Aditya Birla Sun Life Equity Fund – Growth – Regular Plan | 17.72 | 17.24 | 24.98 | 12.33 | 0 | 0 | 0 | 10.74 | 76.03 | 13.22 |
| SBI Small & Midcap – Regular Plan – Growth | 31.21 | 30.49 | 39.73 | 24.76 | 0 | 0 | 0 | 0 | 0 | 100 |
| HDFC Small Cap Fund – Regular Growth Plan | 21.01 | 21.07 | 26.21 | 16.48 | 0 | 0 | 0 | 0 | 25.62 | 74.38 |
| Axis Midcap Fund – Growth | 13.77 | 12.7 | 22.51 | 8.59 | 0 | 0 | 8.26 | 68.6 | 10.74 | 12.4 |
| ICICI Prudential MidCap Fund – Growth | 18.05 | 16.92 | 29.2 | 11.79 | 0 | 0 | 0 | 20.66 | 60.33 | 19.01 |
Tax Saving ELSS Funds – Start date 1 April 2014 – Rolling returns for period of 3 years at an interval of 3 months
| Rolling Return %) | Return Consistency (% of times) | |||||||||
| Scheme / Category Name | Average | Median | Maximum | Minimum | Less than 0% | 0 – 5% | 5 – 10% | 10 – 15% | 15 – 20% | Greater than 20% |
| Axis Long Term Equity Fund – Growth | 15.7 | 14.97 | 22.75 | 8.95 | 0 | 0 | 2.48 | 47.93 | 37.19 | 12.4 |
| SBI Magnum Taxgain Scheme 1993 – Regular Plan- Growth | 12.41 | 12.04 | 18.13 | 7.04 | 0 | 0 | 12.4 | 74.38 | 13.22 | 0 |
| Aditya Birla Sun Life Tax Plan – Regular Plan – Growth Option | 17.76 | 17.39 | 24.54 | 11.3 | 0 | 0 | 0 | 13.22 | 71.07 | 15.7 |
| ICICI Prudential Long Term Equity Fund (Tax Saving) – Growth | 11.67 | 10.71 | 20.07 | 7.37 | 0 | 0 | 34.71 | 52.07 | 12.4 | 0.83 |
| HDFC TaxSaver-Growth Plan | 12.2 | 11.45 | 19.52 | 8.17 | 0 | 0 | 13.22 | 74.38 | 12.4 | 0 |
So trailing return will give an indication of how the fund performed in long run from a particular date to another date but it’s difficult to understand from such data, how consistent the fund is in bad and good times which affects the return percent to an investor.
Rolling returns will give the overall return of the fund over a time period at specific intervals which will help the investor to choose the best fund in terms of performance and consistency.
Though we mostly see the data in terms of trailing returns by fund houses and sites, rolling returns have also started gaining popularity among investors of Mutual Funds.
