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Investors consider several factors while deciding on which mutual fund to pick. One of these major considerations is the returns offered by the fund. Read on to know more about three types of returns – annual, trailing, and rolling returns. 

Understanding annual, trailing, and rolling returns:

Annual returns help you understand the yearly performance of a mutual fund scheme:

You can check the annual returns of a mutual fund scheme and compare it to previous years’ annual returns to assess a fund’s performance in the past. This metric assesses the performance of a fund over a calendar year.

To calculate the annual returns of a mutual fund, you need the fund’s NAV (net asset value) at the end of the current calendar year and its NAV from the previous year. Here’s how you can calculate a fund’s annual returns: 

[(NAV of the fund today) – (NAV of the fund exactly one year ago)] / (NAV of the fund exactly one year ago)

A fund’s annual returns help investors evaluate its consistency and volatility across various market scenarios. You can also calculate the relative performance of a fund in the market by comparing the annual returns with the fund’s benchmark.

One of the limitations of annual returns is that they can’t help investors fully understand the impact of compounding over an extended period.  

You can understand a fund’s performance between two dates using trailing returns:

Calculating the trailing returns of a mutual fund scheme helps you measure the average annual returns over a specific period. This eliminates the limitation posed by annualised returns and provides you with a compounded perspective. You can use the following formula to calculate a fund’s trailing returns: 

Trailing returns = (current value/starting value) ^ (1/trailing period)-1

If you wish to check the three-year trailing return of a fund, if its NAV on 14th April 2024 is ₹54.58 and the NAV 3 years ago was ₹24.01, the calculation would be: 

Trailing returns = (54.58/24.01)^(1/31)-1 = 31.49%

You can make straightforward comparisons between multiple mutual fund schemes over a designated period by referring to a fund’s trailing returns. A major limitation of trailing returns is that they cannot reflect fund consistency or volatility.

Rolling returns offer a continuous and dynamic perspective on fund performance:

Rolling returns are calculated constantly over a specific period and they offer a daily or fixed frequency perspective on fund performance. You can calculate the rolling returns of a fund by assessing the returns of the fund on each day within a fixed period.

For instance, calculation of rolling returns of a fund between 2012 and 2023 would assess the returns on each day during this period. 

You can use an online SIP returns calculator to get an accurate estimate of your mutual fund returns. These free online tools can help you plan your mutual fund investments and also decide on the right investment amount while starting an SIP (systematic investment plan) investment.  

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