What Is Rolling Return in Mutual Funds? Learn Why It's a Better Measure Than Point-to-Point Return

Rolling returns are the “annualised return” of an investment, calculated repeatedly by shifting the starting date. Instead of checking returns between just one start date and one end date, this method calculates returns for many “overlapping periods”. This is why the technique is also known as rolling CAGR. 

Since the calculation covers many different time periods, it shows how the investment has performed over time across various market conditions.

Firstly, you may choose the rolling period, such as 3 years, 5 years, or 10 years. Next, collect the historical NAV data of the mutual fund and calculate the annualised return (CAGR) for the first investment period. 

Then, move the starting date forward by one interval (daily, monthly, or yearly) while keeping the investment period unchanged. Repeat the calculation until you reach the latest available data.

Finally, compare all the rolling return values to assess how consistently the mutual fund has performed over different market conditions.

For a better understanding, let’s study a hypothetical example.
 

Example of 3-Year Rolling Return in Mutual Funds

Suppose a mutual fund has historical data available from 2015 to 2025. To calculate the 3-year rolling return, you may first calculate the annualised return (CAGR) for every possible 3-year investment period. 

Let’s assume you got these returns*:

*Assuming investment in Equity scheme as per AMFI Best Practice Guideline 135/BP/ 109-A /2023-24 dated September 10th, 2024.
 

In this example, each return is calculated for a 3-year holding period, but the starting year moves forward by one year after every calculation. The potential benefit of this approach? Rather than relying on only one 3-year return, investors get multiple return values covering different market conditions (rising, falling, and recovering markets).

This may give a more complete picture than one-time returns, which depend on a single investment period. As a result, investors can better judge whether a fund has delivered stable long-term performance (instead of relying on returns from only one favourable or unfavourable time frame).

As per general market understanding, if most of these rolling returns remain within a “narrow range”, it may potentially indicate that the mutual fund has delivered relatively consistent long-term performance.

Point-to-point returns measure the performance of an investment between one specific start date and one end date. Consequently, the result depends entirely on those two dates, which may give rise to these two scenarios:

As a result, a single point-to-point return may reflect market timing more than the fund's actual track record.
 

How Rolling Returns May Overcome This Limitation 

Rolling returns are calculated across several starting dates and cover many overlapping investment periods, which may include both rising markets and corrections.

As a result, investors may get a broader view of the fund's long-term performance.

Generally, a mutual fund that delivers similar rolling returns over different time periods may potentially shown consistent performance.

So now you know what rolling returns in mutual funds are and how you can use them to evaluate a scheme’s performance. If we were to revise, rolling returns are the annualised returns calculated repeatedly over a fixed investment period by shifting the starting date at regular intervals. 
 

Instead of showing the outcome of just one investment window, they generate multiple return values using historical data. As a result, they may provide a broader view of a mutual fund's long-term performance than point-to-point returns, which depend on a single start and end date. 
 

By covering different market conditions, rolling returns may potentially help investors judge whether a fund has delivered consistent performance over time.
 

For more information, you can visit www.tatamutualfund.com/deshkarenivesh. The Investor Service Centre of Tata Asset Management Pvt. Ltd. is located at Mulla House, Ground Floor, 51, M.G. Road, Near Flora Fountain, Mumbai – 400 001, Maharashtra. The office hours are Monday to Friday, 9:00 AM to 5:30 PM. For assistance, you can also call (022) 6282 7777 from Monday to Saturday, 9:00 AM to 5:30 PM, or email service@tataamc.com

1. Rolling Return vs CAGR: How Do They Differ?

Both rolling return and CAGR measure annualised returns, but they serve different purposes. 

• CAGR shows the return between one fixed start date and one end date.
• Whereas, Rolling return calculates CAGR repeatedly by changing the starting date (while keeping the investment period the same)

As a result, rolling returns provide multiple return values and may help investors better assess whether a mutual fund has delivered consistent performance over time.
 

2. Should I Invest in a Mutual Fund Based on Rolling Returns?

Rolling returns could potentially be one of the performance measures tracked. Besides, you may also evaluate the fund's:

• Risk level
• Expense ratio
• Portfolio quality
• Fund manager's track record, and
• Investment objectives
   

3. Can Rolling Returns Predict the Future Performance of a Mutual Fund?

No, rolling returns are based on a mutual fund's past performance and cannot guarantee future returns. They may only indicate how consistently the fund has performed historically across different market phases.