Mutual Fund Rolling Returns: How to Calculate the Rolling Return?

What Is Rolling Return?

A rolling return has many names; some people call it rolling periods, while others prefer it rolling period returns. The rolling returns are the average of annual returns over time, and these returns will end in a listed year. The importance of rolling returns is that they help you determine how your funds have been performing over the specific holding period. In addition, these can be used in comparison with the returns received by investors. 

When you understand the concept of rolling return, you can then use it to measure the historical performance of mutual funds over a given time frame to see how well they perform or are worth investing in. Likewise, they can also be used to smooth out the historical performance statistics and divide them equally in the same number of portions rather than being dependent on a single one. 

How Does Mutual Funds Rolling Return Works?

Whenever you are investing in a mutual fund, the most common graph people would check is the historical returns generated by the scheme. The returns can be measured in different periods, such as one year to 5 years. If you go on the internet and check the rolling return of any mutual fund, you can quickly find it out as it is readily available for investors to see. The ultimate goal of an investor is to put their money in a mutual fund with a high rate of return that grows their wealth according to their expectations. But truth be told, just the rate of return is not enough to determine whether the mutual fund scheme benefits you. Investors look at the rolling returns to find out the real performance of a mutual fund scheme over the years. 

How To Calculate Rolling Returns in Mutual Fund?

When measuring the rolling returns of mutual funds, we need to understand that it is a time-sensitive concept. That is because, with time being the main focus, this mutual fund performance measuring process is used to deliver a transparent picture of returns accrued. The process is pretty simple; both steps are written down below.

First, as an investor, you need to decide the overall period for calculating the returns of mutual funds. 

The next step is to determine the intervals on which you want to see the returns shown up after the calculation. 

Remember that you need to follow both steps as they are linked. The intervals can be chosen depending on the time a user wants to evaluate the returns. Let's take an example; suppose you want to see the performance of a mutual fund for the next five years in an interval series. Now this series will start on January 1, 2022. The overall investment period will be ten years. But as you want to calculate the performance for the first five years, the rolling returns will be calculated from January 1, 2022, to December 31, 2025. The remaining five years will be calculated similarly, from January 1, 2025, to December 31, 2030. 
 

Benefits Of Measuring Rolling Returns Of Mutual Funds

Below are some of the benefits inventors should know about rolling returns. 

• Rolling return offers good insights to both the investors and to the ones who are looking to invest their money. It provides the accurate and transparent performance of mutual funds over a specific period. 
• With this, you get to choose the mutual fund to invest your money in based on its performance and consistency. 
• The results of rolling returns are quite accurate, and they are not biased in any way possible as the period is chosen by the person who wants to calculate it.
• You can also use rolling returns to find out the returns of recurring investments like SIP, and it can also be used to see the average returns on a mutual fund scheme.
• Lastly, with the rolling return, you get to calculate a number of other metrics like the Sharpe ratio, capture ratios, and more. 

How To Put Rolling Return Information In Your Investment Portfolio?

There is a number of ways by which you can interpret the rolling return for your decision-making in investments in mutual funds. Some of them are written down below. 

• They provide you with a holistic picture of how funds will perform over a number of market cycles. It also calculates the returns for a period for each individual interval. 
• You can choose different intervals like three years, five years, ten years, and so on. This way, you get to find out the highest and the lowest average return that you can expect from the mutual over the course of time. 
• Two mutual funds' rolling returns can help you make a much better comparison between the two. Also, you can compare them over an extended period of time. With rolling returns, you get to see peculiar insights as to how the two mutual funds will perform in different market conditions and how their performance will be affected. 
• You are able to calculate the mutual fund's performance with better accuracy, and it is a more reliable calculation method for longer periods as it is completely unbiased. 
• Lastly, rolling returns shows the goodwill and the consistency of the mutual funds over longer periods. 

Wrapping Up

Rolling the return of mutual funds is a great way to make a knowledgeable decision about the fund's performance in the long run. This way, you can invest your money in a safe place and know what is going to happen to your money over a specific amount of time. On the other hand, we strongly recommend you not to go with rolling return as the one parameter in finding whether the mutual fund is beneficial or not. You may include other parameters such as investment horizon, investment goals, how the market is behaving, the historical performance of the mutual fund, and more.