The Most Reliable Way to Measure Real Performance

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Mutual fund investors often ask a very common question: “Which fund has performed better?” While this sounds logical, it is not always the most useful way to evaluate a mutual fund. Performance numbers can appear impressive or disappointing, depending solely on timing. The more meaningful and professional question to ask is: “Which fund has performed more consistently over time?”

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To answer this, analysts, fund houses, and research platforms rely on a much stronger performance metric than simple point-to-point returns. It is known as rolling returns. This metric focuses on consistency rather than coincidence and gives a far more realistic picture of how a fund actually behaves.

What Are Rolling Returns?

Rolling return is a method of calculating the annualised returns of a mutual fund across multiple overlapping periods over a chosen timeframe. These periods can be calculated daily, weekly, or monthly, and may include one-year, three-year, or five-year return windows.

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Instead of measuring returns between one fixed start date and one fixed end date, rolling returns measure performance across all possible dates within the analysis period. In simple terms, rolling returns show how the fund would have performed if an investor had entered the fund at any point in time during that period, not just on one specific date.

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Why Point-to-Point Returns Can Mislead Investors

Most investors rely heavily on one-year, three-year, or five-year returns, assuming these figures accurately represent a fund’s performance. However, these are point-to-point or trailing returns that compare the NAV on just two dates. This makes them highly sensitive to market conditions at the starting point.

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For instance, if a fund’s NAV was unusually low due to a market correction at the beginning of the period, the trailing return may appear exceptional even if the fund’s performance was only average thereafter. 

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Similarly, if the starting NAV coincided with a market peak, even a well-managed fund may appear to underperform. This distortion is why SEBI and AMFI repeatedly stress the importance of evaluating consistency rather than relying on isolated return numbers.

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Suppose a fund’s NAV was ₹100 on 20 November 2024 and ₹115 on 20 November 2025, resulting in a point-to-point one-year return of 15 percent. At first glance, this looks straightforward. However, if the NAV on 19 November 2024 was ₹108, the one-year return drops sharply. If the NAV on 17 November 2024 was ₹95, the return rises significantly.

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These variations show how dramatically returns can change depending on the entry date. Rolling returns capture all such outcomes rather than highlighting just one convenient figure, making the analysis far more realistic and transparent.

Why Rolling Returns Are a Better Indicator

Rolling returns are widely regarded as the most reliable performance measure because they reduce the impact of market timing and volatility. By averaging returns across multiple entry points, they provide a smoother and more balanced view of performance.

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They clearly highlight consistency by showing whether a fund has delivered steady returns across different market cycles rather than excelling only during favourable phases. Rolling returns also expose weak phases and downside risk, as prolonged periods of low or negative rolling returns indicate instability. This is why rolling returns are an industry-accepted standard used by research platforms, fund managers, and financial planners to assess real-world investor experience.

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How Rolling Returns Work 

Rolling returns are calculated using three simple components:

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The first is the return period, such as one year, three years, or five years. 

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The second is the frequency of calculation, which is most commonly daily. 

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The third is the total analysis window, which could be the last three, five, or ten years.

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Once these parameters are defined, returns are calculated repeatedly by moving the return window forward or backward by one day (or one period) at a time, creating multiple overlapping return observations.

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Practical Example of Rolling Returns

Consider a scenario where one-year daily rolling returns are calculated over a three-year analysis period. The first calculation measures the return from a given date to the same date one year later. The window is then rolled back by one day, and the calculation is repeated. This process continues until the start of the analysis period is reached.

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By the end, hundreds of individual one-year return values are generated. Each value represents a possible investor experience based on different entry dates. Collectively, these values form the rolling return series, offering a comprehensive view of performance across time.

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Suppose you calculate rolling returns on 20.11.2025:

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• First, take the 1-year return from 20.11.2024 to 20.11.2025.
• Then roll back one day and calculate from 19.11.2024 to 19.11.2025.
• Roll back another day: 18.11.2024 to 18.11.2025.
• Continue this process until you reach 20.11.2022.
  
  

At the end, you will have the 1-year return for every single day from 20.11.2022 to 20.11.2025.

This is called daily-rolled 1-year returns for 3 years.

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How Research Platforms Present Rolling Returns

Leading research platforms place strong emphasis on rolling returns while evaluating funds. Value Research uses daily rolling returns to assess performance consistency. Morningstar applies rolling return analysis to distinguish between stable and volatile funds. CRISIL incorporates rolling returns into its long-term fund rankings. AMFI also encourages investors to look beyond trailing returns when assessing mutual fund performance.

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This widespread adoption underlines the credibility and importance of rolling returns across the industry.

What Rolling Returns Reveal About a Fund

Rolling returns answer several critical questions that MFDs face during client discussions. They reveal whether a fund has delivered positive returns across most time periods, how often it has beaten its benchmark, and how well it has protected capital during market corrections. They also provide valuable insight into how suitable a fund is for SIP investors, as rolling returns closely reflect real-life SIP entry experiences.

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Rolling Returns vs Trailing Returns

Trailing returns show performance between two fixed dates, offering a snapshot view. Rolling returns, on the other hand, evaluate performance across all possible periods within a timeframe, revealing the complete performance story rather than a single moment in time.

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How MFDs Can Use Rolling Returns With Clients

For MFDs, rolling returns are an effective tool to compare funds fairly, explain volatility visually, and build long-term trust. They help demonstrate that performance is not cherry-picked and that disciplined investing matters more than short-term market timing. Rolling returns also help set realistic expectations, which is critical for investor retention and confidence.

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In Summary: Why Rolling Returns Matter

Rolling returns help investors and MFDs assess consistency, volatility, downside protection, benchmark performance, and realistic return expectations far more effectively than point-to-point returns. While traditional returns may highlight one favourable outcome, rolling returns reveal the full range of investor experiences.

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For MFDs, understanding and explaining rolling returns elevates conversations from return chasing to responsible, transparent, and professional advisory, exactly what long-term investors need.

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