Types of Mutual Fund Returns – Trailing, Calendar, Rolling & SIP

Ways To Measure The Mutual Fund Performance?

Introduction

There is a lot of confusion in investors over which Returns are more appropriate to evaluate the returns earned by the mutual fund investment. In this article we have discussed the appropriate types of mutual fund returns and how they are used.

Performance of Mutual Funds :Types of Mutual Fund Returns

The returns on any investment is measured as the total of its capital appreciation over time and any other income generated divided by the initial amount of investment. This simple calculation is termed as Total Returns. We have reviewed our funds returns through 4 different parameters, namely:

1. Trailing Returns
2. Calendar Returns
3. Rolling Returns
4. SIP Returns

1.Trailing Returns

• Trailing returns are the most popular measure to assess performance of your Fund in the past. They are point-to-point returns. Trailing returns look backwards from a specific date for a funds annualized returns over a specific period of time.
• Trailing Returns are defined in 2 categories : 1.Regular and 2.Direct
• These returns are calculated for 1/3/5/10 years for Regular category and 1/3/5 years for Direct category. The backward point from which Trailing returns are calculated is usually from the latest NAV available.
• For Example, returns are calculated from a specific date of the most recent year say 31-Jan-2019 to any past date say 31-Jan-2018 (1 year trailing return), 31-Jan-2016 (3 year), 31-Jan-2014 (5 year), 31-Jan-2009 (10 year) etc.

Above graph shows the Trailing Returns for Aditya Birla SunLife Frontline Equity fund as compared to the Benchmark and Large cap funds Category. It shows if the fund has overperformed or underperformed when compared to its benchmark and category.

2.Calendar Returns

• Calendar Returns are nothing but absolute returns. E.g. 1^st January to 31^st December of each Calendar year. Calendar returns tells us how a fund performs in Market Rises and Market falls in various years. It shows if the fund is able to contain the losses better than the Index it follows and how good returns a fund can generate in the market rallies.
• Calendar Returns are calculated for last 10 years starting from 2008. NAV as on last working day of the year is considered for calculating the returns.
• Returns are calculated from last working day of Dec month of the immediately preceding year to the last working day of Dec month of the year under consideration.
• For Example, period to calculate returns for 2017 is 30-Dec-2016 to 29-Dec-2017

Above graph shows the Calendar Returns for Aditya Birla SunLife Frontline Equity fund as compared to the Benchmark and Large cap funds Category. It shows if the fund has overperformed or underperformed when compared to its benchmark and category.

3.Rolling Returns

• Rolling returns give a picture of how a fund’s returns have improved constantly and not just over the latest month or quarter-end. Thus, Rolling Return of a fund is the indicator of the consistency in the performance improvement of that fund. So, rolling return is considered to be a more reliable parameter in the mutual fund performance analysis.
• It shows that you made equivalent return of an average amount in a year in last X years period. In this return all the extreme highs and lows are included from a period of last X years showing you the minimum and maximum returns that you may earn.
• Rolling returns is a type of annualized return. Rolling returns calculate CAGR in an overlapping fashion. i.e. the average annualized returns are taken for a period on every day/week/month and are taken till the last day of the period.

Calculation of Rolling Return

• Let us say we have to calculate 3 year rolling return for the period from 2008 to 2018. Then, we will start calculating performance from 1^st Jan 2008 to 1^st Jan 2011. Next analysis will be from 2^nd Jan 2008 to 2^nd Jan 2011 and so on till the latest data. This is how daily rolling returns are calculated for 3 years time period.
• Similarly, 5 year rolling return will be calculated from 1^st Jan 2008 till 1^st Jan 2013. The total period in consideration for required data for Yadnya’s analysis is 10 years (2008-2018). In our analysis, we use monthly rolling returns (not daily rolling returns)

• The Probability is calculated using mean and standard deviation. Standard deviation is a measure of how much returns can deviate from the average return.
• In our analysis for rolling return calculation we rolled on monthly basis for last 3/5/7 years. We are comparing rolling return of fund with its rolling standard deviation. And this standard deviation is computed from monthly return and then annualized.
• Here we can take an example of a fund’s rolling return comparison in last 3/5/7 years.

• For Example, We can recognize that in ABSL Frontline Equity Fund gave lowest return of 11.5% and highest return was 20.8% in 7 years Rolling returns. And the probable low return is 12.4% and probable high return is 16.2%.Rolling return performance of the fund is consistently above category average in all observation periods – 3, 5 & 7 for both lowest & highest returns.
  

1. Mean – standard deviation = probable low return
2. Mean + standard deviation = probable highest return

• Our rolling return analysis also shows that how in shorter duration ( 3 years), you may incur low or negative returns depending on time period but as the duration of rolling return increases (5/7 years), likelihood of low returns also reduces significantly.
• In above example, lowest return of the Large cap category average is -0.6% in 3 years whereas it is 9.0% in 5 years which shows the whole category has never given less than 9.0% return if the investor has invested for 5 or more years.

4.SIP Returns

• Systematic Investment Plan is a mode of regular investments in mutual funds. SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc).
• A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.
• You are allocated certain number of units based on the ongoing market rate (called NAV or net asset value) for the day. Every time you invest money, additional units of the scheme are purchased at the market rate and added to your account. Hence, units are bought at different rates and investors benefit from Rupee-Cost Averaging and the Power of Compounding.

Process of SIP Calculation- How to Calculate SIP Returns?

For the detailed process of SIP Calculation, Refer our article: What is Systematic Investment Plan [SIP]?

Example : SIP Performance of Aditya Birla Sun Life Frontline Equity Fund

SIP returns of the Aditya Birla Sun Life Frontline Equity fund is below average and benchmark in 1 & 3 years and near average in long term.