Why are rolling returns of mutual funds vital for fund evaluation?

Investors invest in mutual funds, gold, or stocks to earn decent returns. Thus, the initial thing you can look out for in any market-linked instrument is the return it has generated in a specific period. There are distinct ways of computing your investment return. One of the essential ways is mutual fund rolling returns.

What are rolling returns for mutual funds?

Whenever you invest in a mutual fund, the common graph you would review is the mutual fund’s historical returns. You can quickly check the rolling returns of mutual funds through the online platform. Rolling return is computed for a specific period constantly. Simply put, it is like calculating mutual fund trailing returns daily.

Your goal is to put your money in a mutual fund scheme of your choice generating a high return rate that may grow your wealth swiftly over the long term as per your expectations.

However, more than the past one-year return rate is needed to determine if the scheme will benefit you. As an investor, you must look at rolling returns in a mutual fund, i.e., a series of past return rates, to know the actual scheme’s performance over time.

How to compute the mutual fund rolling returns?

This procedure is straightforward as it just involves two key steps. Firstly, you must determine the overall period for computing the mutual fund returns. The second step is to decide the intervals you want to generate the returns.

Both steps are interlinked. The intervals must be selected based on the time you want to assess the returns. Let us take an example. Suppose you want to see the performance of your mutual fund for the upcoming five years in intervals. This series begins on 1st January 2022, with an overall period of investment being ten years.

As you want to compute the first five years’ performance, the mutual fund rolling returns should be calculated from 1st January 2022 to 31st December 2025 by reviewing the series of returns generated over the past five years.

What are the advantages of measuring rolling returns for mutual funds?

• Rolling return endows good insights to you as an investor looking to invest your money. It provides transparent and accurate performance of mutual funds over a particular period.
• With such insights, you can select the appropriate mutual fund to invest your surplus fund based on its consistency and performance.
• The outcomes of rolling returns calculation are accurate and unbiased.
• You can even use the rolling returns to know the returns incurred on recurring investments such as SIP, which can also be used to view the average returns on the scheme.
• With the rolling return, you can compute various metrics like capture and Sharpe Ratios.

Rolling return in a mutual fund is a prudent way to make an informed decision about the mutual fund’s performance over the long term. In this way, you can better invest your surplus fund safely and will be aware of what may happen to your fund over a particular time.