Is Rolling Returns a better way to calculate your earnings?
Rolling Returns is like a daily SIP for a certain interval which takes the average of the series. In other words, it is the average of a series of returns over a given period of time.
Returns can be ‘rolled’ on a weekly and monthly basis as well. It is a more realistic way of looking at your investment returns. If you calculate mutual fund schemes via rolling returns you would get a more accurate and in-depth analysis of a portfolio's performance as returns are calculated each day.
In the long-term, returns tend to absorb the vagaries of the market and give a smooth picture of the fund’s performance. Having said that, if you calculate your returns over a period of time via trailing returns and rolling returns and you find the returns similar, it would simply mean the fund has delivered a consistent performance and the timing of the entry and exit is not too critical. Such schemes can help you consistently create wealth in the long-term. Rolling Returns are more credible if you invest via SIPs over lump sums, however volatile rolling returns are an indication of cautiousness.Rolling Returns can tell you if the fund has consistently performed or if there is any volatility in the short-term. Point-to-point returns do distort the view as returns on a particular day do depend on many factors and may not give you a complete picture of the fund’s performance. It also erases the impact of timing the market. Rolling Returns help you accurately calculate both positive and negative returns given at a point in time, it can also give you a minimum and maximum return a scheme has given you over a period of time.