Trailing returns and rolling returns are ways to measure the performance of an investment over a period of time. Trailing returns assess performance over fixed periods, like one, three, or five years, while rolling returns, annualized, track performance at various points, updating as periods conclude. If you are looking to invest in a diverse portfolio which minimises the risk of loss, mutual funds are a great investing option. These funds invest your money into a variety of stocks, securities, and bonds. As you decide to invest in mutual funds, you can determine their performance by assessing their returns.
The two ways to determine the performance of a mutual fund is by following its rolling returns and trailing returns. When you understand the significance of rolling returns and trailing returns and their differences and shortcomings, you can swiftly assess and evaluate the past performance of a mutual fund and predict its future trajectory.
What are rolling returns?
Rolling return is the average return of a mutual fund during a specific time period which gives a holistic assessment of the fund’s performance. It provides an assessment of continuous performance of the fund. Rolling return is considered to be accurate and the best parameter for predicting the future performance of the mutual fund.
Since rolling returns take into account the performance of a mutual fund on a daily basis, which is then presented in the form of an average for that particular time period, it provides a more accurate and comprehensive assessment of the fund’s performance.
Uses and features of rolling returns
Here are the various features and uses of rolling returns that will help you understand this concept and its utility in a better manner:
- It is the indicator of the average return of a mutual fund because rolling returns is calculated by getting an average of the returns of a fund during a particular time period
- It has a minimum margin of error as it calculates the daily average of returns of a mutual fund
- It provides a wider ambit of understanding about the performance of mutual fund which can prove helpful making a prediction about the fund’s future performance
- The assessment derived from rolling returns is mainly accurate
What are trailing returns?
Trailing returns are point-to-point returns offered by a mutual fund and not a reference to the fund’s average performance. The trailing return, for example, would mean the returns offered by a mutual fund on the day when the investor wants to sell it in comparison to when the fund was bought.
Trailing returns are therefore used by investors to calculate the profit or loss. Apart from the idea of profit or loss, trailing return is little helpful in making any in-depth and detailed assessment of the fund. The trailing returns should be used cautiously if it is used in assessing the overall performance of the fund and predicting the future performance of the fund.
Uses and features of trailing returns
Here are the various features and uses of trailing returns that will help you understand this concept and its utility in a better manner:
- It is an indicator of the performance of mutual fund from point-to-point basis because it does not deal with the average performance
- It provides the exact assessment of the fund’s performance between two particular points in time by giving specific data about profit or loss
- The trailing return data is easy to understand as it is bluntly about profit and loss
- It does not provide an in-depth understanding about the fund’s performance
Difference between trailing return and rolling return in mutual fund
The differences between trailing return and rolling return are listed below in the table:
| Rolling Return | Trailing Return |
| Rolling returns provides the idea about the average performance of a mutual fund | Trailing returns provides the specific data about the gains or loss made from one date to another |
| It gives idea about mutual fund’s overall past performance | It is specific about fall or rise in price between two particular dates |
| It can be used to assess the future performance of a mutual asset | It cannot be used to assess the future performance of a mutual asset |
| It is more accurate forecasting tool | It is less accurate forecasting tool |
| It gives a proper insight for any assessment | It provides an incomplete picture for any assessment |
Example of trailing return and rolling return
For example, there is a mutual fund ABC and it was priced at Rs. 1,000 twelve months ago and is currently priced at Rs. 1,100. In this case, the trailing returns of ABC from twelve months ago till today is 10 percent. This, however, is not indicative of the mutual fund’s overall performance during these twelve months; rather it is point-to-point return of the fund.
On the other hand, the rolling returns can be different from the trailing return. For example, ABC which was priced at Rs. 1,000 twelve months ago registered an average return of 8 percent during this time period (some months ending with a return of 12 percent, some months registering a return of 6 percent). It would mean that the average returns that should be expected of it are 8 percent even though it provided a trailing return of 10 percent.
Which one is a better indicator of mutual fund performance?
In the rolling return vs trailing returns debate, it is always dependent on the investor’s requirement as to which one of the indicators should be chosen. If an investor’s plans to withdraw from the mutual fund, he can entirely rely on trailing returns to confirm if the decision to sell is profitable or loss making.
On the other hand, if the investor is looking for an index to judge the overall performance of a mutual fund and forecast its future performance, the investor has to necessarily rely on the rolling returns. In the case of assessing the past performance and forecasting the future performance, the best indicator to pick is the rolling return.
Conclusion
Now that you know the debate between rolling return vs trailing returns and understand which is suited when, you can begin your mutual fund journey by choosing between SIP investment or lump sum investment.
The Bajaj Finserv Mutual Fund Platform is a platform where you can choose between different mutual funds and also decide between SIP or lumpsum investment plans. It has a dedicated tool to compare mutual funds across different metrics. You can use the insights you gain from the comparison to identify the fund that is right for you.
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