How Rolling Returns Reveal the True Consistency of Mutual Funds

Rolling returns are a powerful lens for evaluating mutual fund performance.

What Are Rolling Returns?

Rolling returns measure the annualized performance of a mutual fund over multiple overlapping periods within a larger time frame. Unlike point-to-point returns (which depend on fixed start and end dates), rolling returns smooth out market timing biases and show how consistently a fund performs.

For example:

• A 3-year rolling return for a fund might be calculated daily (or monthly) over 10 years.
• This provides you with hundreds of 3-year return snapshots, revealing how the fund performs across various market cycles.

🧮 How to Calculate or Find Rolling Returns

You can calculate them manually or use online tools. Here’s both:

Manual Method (for short periods or custom analysis):

1. Choose a time frame (e.g., 3 years).
2. Start with the first date and calculate the return over the next 3 years.
3. Shift the start date forward (daily, weekly, or monthly) and repeat.
4. Average all the results to get the rolling return.

Online Tools:

• Groww’s Rolling Return Guide explains the concept and shows examples.
• MFOnline Rolling Returns Calculator lets you compare up to 4 funds, select start dates, and visualize performance consistency.

Highlights how often a fund delivers stable returns across different periods.

✅ Benefits of Rolling Returns

Benefit	Why It Matters
Shows Consistency	Highlights how often a fund delivers stable returns across different periods
Captures Market Cycles	Includes bull, bear, and sideways phases for a holistic view.
Removes Timing Bias	Avoids misleading results from cherry-picked start/end dates.
Better Fund Comparison	Helps compare funds on consistency, not just peak performance.
Supports Portfolio Structuring	Ideal for advisors like you to assess long-term reliability for client portfolios.

How to Calculate Rolling Returns in Mutual Funds?

 

You can calculate the rolling returns of mutual funds by following the step-by-step procedure explained below:

Step 1: Choose a Starting Date

Select the initial date for your calculation, such as the beginning of a specific year, quarter, or another relevant point in time.

Step 2: Define the Time Frame

Choose the rolling period that you want to analyse. It could be weekly, monthly, quarterly, 1 year, 3 years, or 5 years. It is determined by how often you wish to evaluate the returns.

Step 3: Shift the Time Period

Begin with the chosen starting date and calculate the returns for the set time frame. Then, move the start date forward by a day, week, or month (based on your preference) and recalculate. Repeat this process across the intended time span.

Step 4: Calculate the Average

After gathering all the returns, compute the average to determine the rolling return

After gathering all the returns, compute the average to determine the rolling return.

Let us take an example to understand the calculation process of rolling returns in mutual funds.

Suppose you have a mutual fund with these annual returns over the past five years:

Year 1: 7%
Year 2: 14%
Year 3: 6%
Year 4: 13%
Year 5: 10%

Calculation for First 3-Year Period:

To find the first 3-year rolling return, calculate the average return from Year 1 to Year 3: (7% + 14% + 6%) / 3 = 9%

Calculation for Second 3-Year Period:

Now, shift the period by one year and calculate the average return from Year 2 to Year 4: (14% + 6% + 13%) / 3 = 11%

Calculation for Third 3-Year Period:

Move the period forward again by one year and calculate the average return from Year 3 to Year 5: (6% + 13% + 10%) / 3 = 9.67%

So, your 3-year rolling returns will be:

• 9%
• 11%
• 9.67%

From these results, you can say that the returns of this mutual fund are fairly stable, mostly ranging between 9% and 11%. Additionally, there are no sharp drops or surges, meaning the fund is steady over time.

Advantages of Rolling Returns in Mutual Funds

Rolling return is a crucial tool for analysing mutual funds as it offers several key advantages. These include:

By examining rolling returns, you can identify funds that have consistently provided strong returns over various periods. This insight helps in making more informed investment decisions.

You can use rolling returns to compare how different mutual funds perform across various timeframes. This comparison helps in selecting the fund that aligns best with your investment goals.

Analysing rolling returns also aids in assessing the risk-adjusted performance of mutual funds. This process helps you understand the level of risk associated with each mutual fund, enabling you to match your investments with your risk tolerance.

Applications of Rolling Returns

Rolling returns have several valuable applications for mutual fund investors, which are as follows:

• Performance Assessment

It offers a dynamic view of a fund’s performance, helping you evaluate its consistency and spot potential concerns, such as prolonged underperformance or high volatility.

• Portfolio Optimization

Comparing the rolling returns of different funds enables you to optimise your portfolio by choosing funds with complementary performance patterns, which helps minimise risk while enhancing potential returns.

• Strategy Adjustment

Rolling returns allow you to refine your strategies by highlighting the ideal holding periods for various funds or asset classes, thus allowing you to adjust your investment horizons accordingly.

• Benchmarking Tool

Rolling returns allow for effectively benchmarking a fund’s performance against relevant market indices or similar funds, offering a more comprehensive comparison than traditional return methods.

• Risk Management

Using risk-adjusted rolling returns, you can effectively control your portfolio’s risk exposure and ensure your investments are in line with your risk tolerance.

How Can Rolling Returns Be Used to Compare Mutual Funds?

To effectively compare mutual funds using rolling returns, it is essential to go beyond just

the average return and analyse the distribution of returns over time. This approach helps you understand the consistency of a fund’s performance, revealing whether it delivers stable returns or has periods of significant highs and lows. For example, two funds might have similar average rolling returns, but one could be more consistent, while the other may experience extreme fluctuations.

By studying the rolling return distribution, you can identify how often a fund posts negative or unexpectedly low returns, providing insights into its risk level. A fund with frequent low periods may be riskier, even if its average return appears high. Additionally, reviewing the range of returns gives you a clearer picture of how the fund performs during both market upswings and downturns.

This analysis enables you to choose funds that align with your risk tolerance and investment goals by identifying options with steadier returns over time.