Mutual Fund performance is assessed based on its returns or performance, and the two most important performance metrics used in evaluating Mutual Funds are:
(a) Trailing Returns
(b) Rolling Returns
So, let us now understand the concepts behind the two widely used methods for calculating returns in mutual funds and uncover the differences between them. The scheme returns so calculated when compared to its respective benchmark would reflect either out-performance or under performance by the scheme.
Trailing Returns:
Trailing Returns in mutual funds are a way to measure how a fund has performed between two specific dates. Trailing Returns are also commonly referred to as "point-to-point" returns. They offer a brief overview of the fund's performance at a given point in time and can be computed over different time frames, including year-to-date (YTD), one year, three years, and beyond, or even from the fund's beginning to the present day.
Rolling Returns:
Rolling returns, sometimes called "rolling period returns" or "rolling time periods," indicate the average annualised returns calculated for a given time frame. They offer a valuable means of evaluating how Mutual Funds perform over time, mirroring the actual experiences of investors’ holding period. Evaluating a portfolio or fund's Rolling Returns provides a smoothed-out performance perspective across different time intervals in its history.
To calculate Rolling Returns of mutual funds, you analyse the fund's performance over various time periods, usually using a specified interval, such as daily, weekly, or monthly, and compute the average annualised returns for each of these periods.
In conclusion, Trailing Returns measure a fund's historical performance over a specific period, while Rolling Returns provide a more dynamic view by analyzing performance over various overlapping time frames. These metrics help investors assess a fund's consistency and potential for future returns of a mutual fund.
Disclaimer
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
