What are Trailing Returns and Rolling Returns in Mutual Funds?

One of the most common ways to analyse the performance of any mutual fund scheme is its performance history. If the scheme has been able to consistently deliver in the past across market conditions, it can be a decent pick for your portfolio.But apart from absolute returns, there are two other past performance evaluation methods- trailing returns and rolling returns. Check out what they are and how they are different-

Trailing returns indicate the performance of a mutual fund scheme for a specific duration, like 1 year, 3 years, 5 years, or from the date of inception. As they indicate performance from a particular point in time to a particular point in time, trailing returns are also known as point-to-point returns.Trailing returns provide a more transparent picture of the scheme’s performance as compared to absolute returns. For instance, if a particular scheme has performed very well in the last 10-years but not as good in the past 3-years, the trailing returns can clearly indicate its sedating growth.

Rolling returns make it possible to average out the returns from a mutual fund scheme from overlapping periods. With rolling returns, 3 years, 5 years, or 10 years blocks can be used at different intervals to know how the scheme performed over the period.Unlike trailing returns, which calculate point-to-point returns, trailing returns measures the returns at different points of time. For instance, let us consider a 5-year block for 15 years, starting from January 1, 2010. So, the returns will be calculated from January 1, 2010, to December 31, 2015, followed by returns from January 1, 2015, to December 31, 2020, and so on.

Both rolling returns and trailing returns have their benefits and can be suitable under different scenarios. But if the rolling returns vs. trailing returns benefits are closely examined, rolling returns are highly accurate and reliable as it is free from any bias with respect to any timeframe. This is generally very helpful for SIP investors.Note that most fund houses generally only display the trailing returns of their schemes. But in the last few years, rolling returns have also gained popularity. You should consider both before making a smart investment decision.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.