Rolling returns offer a comprehensive view of the performance of mutual funds, giving you insights that static point-to-point returns may miss. It’s a process that measures the fund’s performance over multiple periods, often yielding a more complete picture of the investment’s overall potential and risk.
Now, let’s break down how you can calculate rolling returns for your mutual fund investments:
- Pick a Time Frame: Choose the duration for which you want to calculate the rolling return. For instance, let’s assume you pick a three-year period for an equity mutual fund.
- Select Data Points: Identify the net asset value (NAV) of the mutual fund at the start and end of this three-year period.
- Compute the Return: Use the following formula to calculate the return for this period:Return = [(Ending NAV – Starting NAV) / Starting NAV] * 100
- Roll Forward: Now, roll forward by one unit (day, week, month, etc.) and repeat the process.
For instance, if you were calculating a three-year rolling return, and your start date was January 1, 2010, the end date would be December 31, 2012. Now, roll forward by one day, making the start date January 2, 2010, and the end date January 1, 2013. Repeat the return calculation process.
- Iterate: Repeat this process until you reach the end of your data series.
Now, let’s put this into perspective with a numerical example:
Let’s say we’re examining a mutual fund with the following NAVs:
- January 1, 2010 – Rs.10
- December 31, 2012 – Rs.20
- January 1, 2013 – Rs.21
Now, let’s compute the rolling returns:
- For the period of January 1, 2010 to December 31, 2012:Return = [(20 – 10) / 10] * 100 = 100%
- Now, we roll forward by one day, making the new period from January 2, 2010 to January 1, 2013:Return = [(21 – 10) / 10] * 100 = 110%
Remember, the calculation of rolling returns is not a one-time process. You should keep tracking this data over time to ensure the fund’s performance is in line with your expectations and financial goals.
