Mutual Fund Performance-Trailing Return or Rolling Returns?

Market is at all time high and all funds are at green. In fact all funds are showing wonderful returns. So now if one want to choose a fund then how to choose a best mutual funds? Difficult right?

When you look at any mutual fund analyzing sites, they show you the “Trailing Return”. What it is?

Trailing Return means looking back fund return from today’s point or you may say from any particular date. Like 1 year return from today, 2 years return from today or 10 years return from today and so on.

Let us say “FUND A” came to market on 1st January 2010 with initial NAV at Rs.10. Now suppose if the fund NAV  is 15 on 1st Jan 2011 then one year absolute return will be 50% !!! If same NAV moved to 20 on 1st Jan 2014 then the return will be 18.92%. What it indicates? This shows that if you invested Rs.10 in this fund on 1st Jan 2010 then year on year your return will be 18.92% compounding return till 1st Jan 2014. Means from 1st Jan 2010 to 1st Jan 2011 your invest might have grown to 11.89. Next year i.e on 1st Jan 2012 return might be Rs.11.89+18.92%=Rs.14.14 and so on. Hence while calculating such trailing return, the important point which judges the return is from which date you are calculating. If it is today i.e at current high market then all returns will be a big positive. At the same time if the considering date is bear market then you might get all funds showing negative return.

Suppose “FUND A” and “FUND B” launched on same day with same NAV of Rs.10. Suppose after two years “FUND A” showing return of 8% while “FUND B” 10% . But after 5 years if “FUND A” shows return of 35% and “FUND B” shows 30%. Then while analyzing the both the funds which one you choose? FUND B right as it is consistently beaten it’s peer fund FUND A.

So trailing return will give an indication of how the fund performed in long run since past. But as I said above, it is hard from such data to understand like how consistent the fund is in bad and good times. But sadly all sites which compare and give ranking will provide this trailing returns only.

Solution to such problem is “Rolling Return”. What it will calculate is as below if we consider the same above example.

It will calculate the yearly return on daily bases from 1st Jan 2010 to 1st Jan 2011, from 2nd Jan 2011 to 1st Jan 2012, from 2nd Jan 2012 to 1st Jan 2013 and finally from 2nd Jan 2013 to 1st Jan 2014. So if there are around 300 trading days in a year then it will calculate 300*4=1200 daily data is calculated and averages of these returns will be separated as one year rolling return.

This will give you the actual picture on which year the fund performed well and worst. This rolling return will give you an idea how best it is in beating index it follow, how many times this fund outperformed and it’s standard deviation from Index.  In below images, I will try to show you the rolling return by selecting the fund Franklin India Bluechip Fund (G) from data period 03-04-2006 to current data i.e 07-07-2014. Let us calculate the rolling return for 1 Yr, 2 Yrs and 3 Yrs period and see the result as below. Index I considered is BSE 200.

a) One Year Rolling Return

Rolling Return-1 Yr

What this data provide us?

  • Maximum Rolling Return 115% and minimum Rolling Return -50.60%.
  • Number of times fund outperformed index is 1111 out of 1787.
  • Average rolling return is 14.23%.
  • Chances of fund beating index is 62.17%.

b) 2 Yrs Rolling Return

Rolling Return-2 Yrs

What this data provide us?

  • Maximum Rolling Return 152% and minimum Rolling Return -31.50%.
  • Number of times fund outperformed index is 1231 out of 1540.
  • Average rolling return is 23.38%.
  • Chances of fund beating index is 79.94%.

c) 3 Yrs Rolling Return

Rolling Return-3 Yrs

What this data provide us?

  • Maximum Rolling Return 143% and minimum Rolling Return -7.12%.
  • Number of times fund outperformed index is 1259 out of 1294.
  • Average rolling return is 39.25%.
  • Chances of fund beating index is 97.30%.

Above data definitely say that whoever invested for more than 3 years in this fund have a chance of beating Index of around 97% than of 62% for 1 year investor. Also see the maximum and minimum rolling returns, negative return reduced drastically from -50%  (for one year)to just -7.12% (for 3 years).

But where you will get calculator?

You can visit and download the free excel sheet for your calculation.  All above charts were created from this same excel sheet, which is very user friendly. Check it !!!.

16 thoughts on “Mutual Fund Performance-Trailing Return or Rolling Returns?”

  1. Dear Basavaraj

    Read your writeup with interest. have couple of queries
    1. should we consider only the rolling returns while selection a fund (at this point was going through HDFC NPS fund performance comparison)
    2. What is the best and convenient way for buying sip in MF – direct from fund house, Demat account like SMC or platforms like Zip Sip ( as earlier i buy through the bank and they charge brokerage for transactions)

      1. Thanks for the prompt reply. Buying direct is fine but you need to apply seperately with each fund house e.g. SBI MF or HDFC. I talkedto sharekhan and ZIP SIP they told me they donot charge any Brokerage for MF SIP. I donot know how that works?

        1. Aman-To get something you have to work. Nothing is free on this earth. So take pain and finish one-time process (if you are concerned about saving 0.5% to 1% of advisers commission). Sharekhan or other brokers not charge you upfront. However, they earn the commission directly from mutual fund companies in the way of a trail and upfront commission (which is adjusted to your NAV and you not notice it). They are not offering it at FREE.

  2. I would like to get your guidance on the following issue related to my father’s MF investment.

    He invested Rs.10000 each in 5 different MF schemes in 2006 – 2007 period. Some time back he had a major health problem resulting in paralysis of his right side. Now we want to redeem those investments. Since, he cannot sign now in the redemption form, I would like to know how to proceed further for redeeming the units. Whether MFs have any standard procedures to be followed in this kind of situation.

    Thanks and regards.

    1. Srinivasana – There are 2 options here:

      1. Try online registration for folios directly with fund house. If you have all the information correctly mentioned during applicaiton, you should be able to transact online. Most of the fund houses allow online transacitons. Not all. Try for each of you funds. If some details like email or telephone number is missing, get it update via calling the fund house helplines.

      2. Power of Attorney – Create a Power of attroney for your father in someone’s name (maybe yourself). Use this document to get the updates done with each fund house.

  3. I am 35 years old living with my family (wife and 1.5 ear old son). When I retire at 60, I should have corpus of 4 Cr.
    I have earmarked 25K per month saving which can be invested in MF. Apart from that I invest almost 2L in PPF every year for last 4 years. Also, I need 20L in 15 years as another goal.

    Should I invest in the pension plans or invest in equity since I am hoping for a long time investment.

    Can you please advise which all MF funds should I select with a 15 to 20 year plan. If not name, pls suggest the % of categories like Equity, Debt ctc


    1. PAnnop-First let me know how you arrived at Rs.4 Cr retirement corpus? Better to choose equity mutual fund than any pension plans. Selecting fund based on goals involves lot of guidance and data sharing from you. That involves fee based service. Are you ready for that?

      1. Thanks for the response. I have calculated based on my current household expense and inflation. Used few calculators available online from different sites.

        I am new to Mutual funds and pension plans, hence was looking for the initial guidance.
        I will let you know later about the service I am looking for. Thanks.

  4. Hello Basavaraj,
    Over the past few years, I was just dependent on RD and FD for investing. I want to explore more options.

    I am novice to investments. Please let me know few areas where I can invest.

    Vijay Gopu

    1. Vijay-Your question is just wider where I can’t guide you properly. But other options than RD and FD are like PPF, Equity Mutual Funds, Debt Mutual Funds or even Gold ETFs. Again selecting each product and asset class depends on your financial goals.

  5. Basavaraj, I chanced upon your blogs yesterday which propelled me to make a decision which I was contemplating but not able to decide for last say 2-3 years. I feel these write up are pretty useful and my search for right guidance in term of Financial Planner would be addressed with your help.
    I understand you operate out of Bangalore, I would like to seek your appointment during my next business trip to Bangalore and seek you help (would be in less than a month from now).

    So may I request your details to be mailed to me. Once I get you id we can converse privately.I am normal uy seeking some help to get my finance right.


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