What Are Rolling Returns and How to Calculate Them?

Overview

Point-to-point returns evaluate performance between two specific dates but may not effectively summarize overall growth. Conversely, rolling returns offer a more comprehensive insight.

Calculation of Rolling Returns

To calculate rolling returns, one examines the NAV on a given date and compares it with the NAV from the same date in previous years to estimate the gains.

Time Series Analysis

This method generates a time series of rolling returns over an entire timeline. Determining the range of rolling returns involves identifying the highest and lowest values in this sequence. The average return helps in understanding the expected return.

Investment Considerations

When investing in mutual funds, analyzing historical rolling returns for the desired investment period is crucial to assess possible returns and risks. For equity funds, at least 5 years of rolling return data is advised, with more being preferable.

Conclusion

Rolling returns provide critical insights that assist investors in crafting more effective investment strategies.