You can switch off notifications anytime using browser settings.Is rolling return the best way to measure performance of mutual funds?Stock Analysis, IPO, Mutual Funds, Bonds & MoreIs rolling return the best way to measure performance of mutual funds?Which is the first and the most common criteria to choose equity mutual funds?Which is the first and the most common criteria to choose equitymutual funds? Most of us would say- past returns, which is true. Most retail investors look at the historicalreturnsgenerated by the scheme in the different periods, say, one-, three- and five-years while choosing an equity scheme. The plain reason is that these are easily available and also that the ultimate motive of anyone investing in an equity fund is to earn good returns.
However, mutual fund experts argue that usingtrailing returnsdoes not actually give us the correct picture. Investors should in fact look at therolling returnsif they want to base their choice on pastperformance.
Rolling returns is a bullet proof method to understand market volatility as against trailing returns. This method helps you make the decision by looking at the probability of the past by looking at the probability of the future, said Sunil Subramaniam, Managing Director, Sundaram Mutual Fund, while talking at ET Wealth Investment Workshop in Hyderabad last month.
Whats the problem with trailing returns? In an improved or uptrend of a market cycle, trailing returns of all the periods for a scheme would improve as they are calculated point to point. Similarly, in a bad market, trailing return of all the periods for a scheme will fall.
Rolling return is the solution. But why? And how is it calculated?
A rolling return is the average of a series of returns over a long period of time. It is like a daily SIP for a certain interval and then taking an average of the series of returns.
An example will make it clear. Lets assume an investor wants to invest in Sensex for a time period of five years. We have taken Sensex just for an illustration purpose here. And five years because it is the minimum horizon an equity fund investor should have. Assuming she wants to test the five year returns over 15 long years, on an excel sheet she can start with daily price of Sensex. Next, she needs to calculate returns if she invests in Sensex on April 01, 2003 for five years, which means her SIP will end on March 31, 2008. Again calculate returns if she starts SIP next day that is on April 02, 2003 for five years, which means her SIP will end on April 01, 2008. Again calculate five years SIP returns if she starts on April 03, 2003. Continue this exercise over a span of 15 years. This will give her almost over 3,800 sample five year returns of Sensex over the period of 15 years. The average of these returns is the rolling 5-year returns, rolled daily over 15 years.
Returns can be rolled on weekly and monthly basis as well.
The benefits of this exercise do not end here. While doing this exercise, you can also find out for how many periods (3,800 in our example above), did a scheme gave positive returns and for how many it gave negative periods. Also, you can find out for how many periods did a scheme beat the inflation. You can also know the maximum and minimum return a scheme has given for a five year period over a long span of 15 years. This will give you an idea about the probability of happenings in future.
Though future is unpredictable and there is no guarantee of repetition of the past performance, we can rely on this method if we evaluate the performance over a long span (like 15 years in example above) and big sample periods (3,800 in example above).
When we use rolling returns method, it erases the impact of timing the market and you can actually reach at expected performance of a scheme in future.
Next big question, where to find this data. Computing this for a scheme or two can be done but it does not solve the purpose till you find rolling returns for all the schemes in a category and choose the best scheme to suit yourriskprofile.
You can find this data on various online portals available. Otherwise, you can ask your financial advisor for the data as s/he will have access to paid databases as well.
(%)Mirae Asset Tax Saver Direct-G-0.509.589.1910.9522.49Invest NowMirae Asset Tax Saver Reg-G-0.689.088.239.3420.83Invest NowMotilal Oswal Long Term Equity Fund Direct-Growth
ELSS-0.4111.3810.477.1416.16Start SIPMotilal Oswal Focused 25 Fund Direct-Growth
Large Cap0.3810.458.823.0815.03Invest NowDHFL Pramerica Gilt Direct Plan – Growth
Gilt1.602.836.289.887.64Invest NowDSP Midcap Direct Plan-Growth
Mid Cap-2.068.266.20-4.0414.61Start SIPDHFL Pramerica Hybrid Debt Fund Direct Plan-Growth
Conservative Hybrid0.624.026.269.779.49Invest NowDSP Focus Direct Plan-Growth
Multi Cap0.6312.279.915.5312.70Start SIPMotilal Oswal Multicap 35 Fund Direct-Growth
Multi Cap1.1910.038.46-0.1416.27Invest NowMotilal Oswal Midcap 30 Fund Direct-Growth
Mid Cap-0.5011.268.59-0.809.28Invest NowDHFL Pramerica Large Cap Fund Direct Plan-Growth
Large Cap1.2610.4011.808.9814.03Invest NowDSP Small Cap Direct Plan-Growth
Small Cap-2.4410.842.82-13.318.39Start SIPDSP Equity Opportunities Direct Plan-Growth
Large & MidCap-1.409.227.752.6615.70Start SIPDSP Credit Risk Direct Plan-Growth
Credit Risk-0.051.66-0.52-0.644.93Start SIPMotilal Oswal Long Term Equity Fund Direct-Growth
ELSS0.399.757.04-3.1117.54Invest NowDSP Tax Saver Direct Plan-Growth
ELSS-0.4111.3810.477.1416.16Start SIPDSP Liquidity Direct-Growth
Liquid0.601.783.677.617.20Start SIPICICI Prudential Savings Fund Direct Plan -Growth
Low Duration0.692.174.388.527.90Invest NowDSP Savings Direct Plan-Growth
Money Market0.682.094.158.476.98Start SIPDSP Strategic Bond Direct Plan-Growth
Dynamic Bond-0.451.374.498.506.75Start SIPDSP 10Y G-Sec Fund Direct-Growth
Gilt with 10 year Constant Duration1.482.475.9210.207.31Start SIPDSP Bond Direct-Growth
Medium Duration0.602.443.646.137.48Start SIPDSP Short Term Direct Plan-Growth
Short Duration0.762.264.768.847.59Start SIPDSP Ultra Short Fund Direct Plan-Growth
Ultra Short Duration0.651.973.066.416.97Start SIPDSP Equity Savings Fund Direct-Growth
Equity Savings0.426.235.934.449.28Start SIPDSP Dynamic Asset Allocation Fund Direct-Growth
Dynamic Asset Allocation0.593.194.867.949.66Start SIPDSP Regular Savings Direct Plan-Growth
Conservative Hybrid0.505.113.400.447.15Start SIPDSP Equity & Bond Direct-Growth
Aggressive Hybrid0.099.419.305.2913.27Start SIP
– Returns less then 1 year are absolute and above 1 year are annualised.
– Returns of 1 year are absolute and above 1 year are annualised..
Welcome to the world of performance-reducing drugs
ICSSR and research bodies cross swords on performance standards
India delivers mixed performance in Asian varsity rankings
Performance review of export promotion councils to start soon
Done your tax-saving right? Use ET Wealths guide to find out.
Commenting feature is disabled in your country/region.
DownloadThe Economic Times Business News Appfor the Latest News in Business, Share Market & More.
Worries pile up for debt mutual funds as multiple downgrades hit NAVs
Is my mutual fund portfolio appropriate to create wealth in 15 years?
If you predict the election results accurately, you will feel nice for 15-20 days: Aashish Somaiyaa, CEO, Motilal Oswal AMC
Avoid all mutual funds with lock-in feature, say advisors
Ideal mutual fund schemes for a 19-year-old investor?
Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights:Times Syndication Service
Is rolling return the best way to measure performance of mutual funds?
Understanding the alpha and beta of mutual funds
As TER gets into the act, mutual fund expense ratios begin to fall
A young investors guide to mutual funds
Why do wealth managers recommend multi cap mutual funds?
All you need to know about fixed maturity plans or FMPs
How distinct are smart beta funds from other schemes
Diversify equity portfolio with international funds
How to take a loan against mutual fund investments
All you need to know about promoter funding by debt mutual funds?
Choose your reason below and click on the Report button. This will alert our moderators to take action