May 2023
4 mins read

5 Things You Need to Know About Rolling Returns

Studying the historical returns of a market-linked investment gives you an insight into its past performance. This may help you compare schemes and check its consistency and performance during different market phases. There are several metrics to help you assess historical returns, one of which is rolling returns. Here’s what you need to know about them:

What are rolling returns?

Rolling returns are a series of point-to-point returns, calculated at predefined intervals (usually daily) between two time periods. For example, to calculate the annual rolling returns of a mutual fund between 1st April 2015 and 1st April 2021, returns would be calculated between 1st April 2015 to 1st April 2016, 2nd April 2015 to 2nd April 2016, 3rd April 2015 to 3rd April 2016 and so on till the last date, i.e., 1st April 2021.

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How are they calculated?

To calculate rolling returns, you need two inputs – the calculation period and the intervals at which the point-to-point returns would be calculated. For example, if you want to know the 2-year rolling returns calculated monthly between 1st April 2015 and 1st April 2021, returns would be calculated between 1st April 2015 and 1st April 2017, 1st May 2015 and 1st May 2017, and so on. You can use online rolling return calculators to help you with this.

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Rolling returns vs CAGR

Compound annual growth rate (CAGR) give you the average annual return from an investment (geometric mean). On the other hand, rolling returns show you how the scheme has performed at different intervals within the same year or period. This is particularly helpful to assess the consistency of scheme returns over the specified time period.

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The benefits of studying rolling returns

Rolling returns help you assess the historical performance of mutual fund schemes. They can also be used to evaluate returns from other market-linked investments, like stocks or ETFs. They are a useful metric to assess an investment's performance because they show the returns at different time periods. Since market-linked securities constantly fluctuate with changing market dynamics, rolling returns provide a more holistic look into past returns.

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The drawbacks of relying on rolling returns

Rolling returns need a lot of data to monitor the returns at different periods. While this is easily available for instruments such as mutual funds or equity stocks, it can be challenging to gather such data for some other investment avenues, which may affect the usefulness of the assessment.

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When considering market-linked investments, check the rolling returns of the investment to assess its sensitivity to market performance. 

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