What are trailing and rolling returns?

Trailing and rolling returns are two metrics used to calculate the returns generated from a mutual fund scheme. Each of these can help you understand how a particular fund has performed. While past returns are not indicative of future performance, you can use these returns to see how a scheme interacts with the market over time and select suitable mutual fund options for your financial goals. Understanding how these returns are calculated can also help you gauge the performance of your existing mutual fund investments. 

Trailing And Rolling Returns: What Are They?

Trailing or point-to-point returns calculate the performance of a mutual fund scheme between two set points in time. Trailing returns measure the gains or losses a mutual fund has experienced over a specific period, like one year, three years, or five years. These returns are normally used to gain insights into the historical performance of a fund.

Rolling returns represent the average annualised return of a mutual fund scheme over a specified period. They provide a flexible perspective on mutual fund returns, as they can be calculated for periods as short as a day or as long as a year.

How do you calculate trailing returns?

You can use the following formula to calculate trailing returns:

Trailing returns = (Current NAV/ Starting NAV) ^1/n – 1

The formula calculates the percentage change in the value of an investment over a specified trailing period. It uses two price points - the fund's NAV (Net Asset Value) at the end date, which is its current NAV and the NAV at the starting date. NAV refers to the per-share value of a fund's assets.

How do you calculate rolling returns?

You can use the following formula to calculate rolling returns:

Rolling returns = (Ending NAV – Starting NAV) / Starting NAV x 100

The formula helps you assess the percentage change in the value of a mutual fund over a specified rolling returns period. The ending NAV represents the NAV of the mutual fund at the end of the rolling returns period, whereas the starting NAV represents the NAV of the mutual fund at the beginning of the rolling returns period.

How can calculating trailing returns help you?

Trailing returns are effective for assessing the recent performance of a mutual fund scheme. They are calculated between two specific points in time, with the second point leading up to the present. Trailing returns serve as a valuable tool for analysing the volatility and risk inherent in an investment.

It is important to note that while trailing returns offer insights into a mutual fund's recent performance, they may not provide a complete picture of the fund's consistency. Trailing returns only show how a mutual fund has performed between two specific points in time. There is no context about the broader market environment during that period. 

How can calculating rolling returns help you?

Rolling returns analyse how mutual fund have performed across different time intervals that overlap with each other. They provide a more comprehensive view of the fund's performance over an extended period rather than just within a single calendar year.

Rolling returns evaluate the consistency of an investment's performance, whether positive or negative. They indicate a scheme's stability across diverse market conditions and contribute to more realistic expectations.

They provide insight into how investments respond to market changes and empower you to make informed decisions. Rolling returns are particularly beneficial for recurring investments, such as through a Systematic Investment Plan (SIP). 

Conclusion

Trailing and rolling returns can be used together to gain a comprehensive perspective on mutual fund returns. You can carry out these calculations manually, use online mutual fund return calculator, or consult a financial advisor for better understanding. 

An investor education initiative by Edelweiss Mutual Fund

All Mutual Fund Investors have to go through a one-time KYC process. Investors should deal only with Registered Mutual Fund (RMF). For more info on KYC, RMF and procedure to lodge/redress any complaints, visit - https://www.edelweissmf.com/kyc-norms  

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS. READ ALL SCHEME-RELATED DOCUMENTS CAREFULLY