Rolling Returns: Definition, Example, and How To Analyze

Rolling returns are important aspects to consider when it comes to mutual fund investments. These returns provide an overall view of how a mutual fund has performed over different time periods and offer valuable insights into the fund’s historical performance.

This article will explore the concept of rolling returns with illustrative examples. It will also elaborate on how to analyse these returns effectively.

Understanding rolling returns

Let us understand how to analyse rolling returns effectively

• Time frame and frequency

  The time frame and frequency for calculating rolling returns depend on your investment goals and horizon. For long-term investments such as retirement planning, you may opt for 3-year or 5-year returns. Short-term investments will involve daily or weekly rolling returns.

• Consider dividends and fees

  To ensure accurate calculations, adjusting your returns for dividends received and fees paid during the investment period is important. Reinvest dividends and subtract the fees from the returns to know the net performance of the investment.

• Mean return analysis

  Calculating the mean return involves adding all the returns over a specific period and dividing the same by the number of time intervals. This provides insights into the average returns you can expect from your investments over time.

• Standard deviation assessment

  Standard deviation measures the volatility of the returns from your investments. A higher standard deviation indicates greater volatility and risk. It helps you assess how risky the investment is.

• Risk-adjusted returns

  Evaluating risk-adjusted returns involves taking the standard deviation of the returns and adjusting the same accordingly. It allows you to compare different investments with varying levels of risk, helping you identify the best investment for the risk you are willing to take.

• Time horizon considerations

  The time horizon you choose significantly impacts the analysis of rolling returns. Longer time horizons provide a more accurate picture of the fund’s performance whereas shorter ones may be more volatile and unpredictable.

Importance of rolling returns for mutual fund analysis

Rolling returns of mutual funds are important and offer several benefits

• Assessing consistency

  By analysing rolling returns, investors can identify mutual funds that have consistently delivered favourable returns over different periods. This helps in making informed investment choices.

• Comparative analysis

  Investors can use rolling returns to compare the performance of different mutual funds across different time horizons. This allows investors to select the most suitable fund for their investment objectives.

• Assessing consistency

  By analysing rolling returns, investors can identify mutual funds that have consistently delivered favourable returns over different periods. This helps in making informed investment choices.

• Risk evaluation

  Risk-adjusted returns calculated by analysing rolling returns allow investors to assess the risk levels associated with different mutual funds. This process of risk evaluation helps in aligning investments with risk tolerance.

Rolling returns vs point-to-point returns

Some of the differences between rolling returns and point-to-point returns include

• Volatility

  Point-to-point returns can be more volatile as they consider returns at specific points in time, which may not represent overall performance accurately. Rolling returns, on the other hand, provide a more accurate view of performance over continuous periods.

• Historical returns

  Point-to-point returns offer insights into the fund’s performance over a fixed period while rolling returns consider performance over various periods. This makes rolling returns more suitable for historical performance analysis.

• Accuracy

  Rolling returns are considered more accurate for performance analysis because they provide a more comprehensive view of returns over time. They are less likely to be affected by extreme market conditions.

Using rolling returns for informed investment decisions

Rolling returns provide valuable information to investors for making informed investment decisions. Whether you are a seasoned investor or just beginning your investment journey, the insights gained from analysing rolling returns can guide your choices, aligning your investments with your financial goals.

Rolling returns are essential for understanding the historical performance of a mutual fund. They offer a broader view of investment returns over different time periods. Investors can make the most of rolling returns by considering factors such as time frame, dividends, fees and risk-adjusted returns to build a diverse and goal-oriented investment portfolio.