Stock Market · Mutual funds, deeper

Rolling returns vs point-to-point

Most mutual fund websites show 1-year, 3-year, 5-year returns. These are 'point-to-point' returns. Measured from one specific date to another. They can be massively misleading. Rolling returns tell the real story.

Point-to-point returns, the problem

A fund's 5-year return measured ending June 2024 might be 18%. The same fund's 5-year return measured ending September 2024 might be 12%. The fund didn't change. The start and end dates did.

Cherry-picking start dates lets funds advertise impressive returns that aren't representative of the typical investor experience.

Rolling returns, the solution

Rolling returns calculate the 5-year return for EVERY possible 5-year period (e.g., Jan 2014 to Jan 2019, Feb 2014 to Feb 2019, etc.). Then average them.

This shows the typical 5-year experience for an investor, regardless of when they started.

> If a fund's 5-year rolling return averages 14% with a range of 8-20%, that's a much more realistic expectation than a single 18% point-to-point number.

What to look for

1. Median rolling return: the typical experience

2. Worst rolling return: how bad it can get

3. Best rolling return: realistic upside

4. Percentage of negative rolling periods: how often investors actually lost money over 5 years

Indian context

For Nifty 50 5-year rolling returns over 20+ years:

• Median: ~13%
• Worst: -3% (around 2008 crisis)
• Best: ~24%
• Negative periods: <5% of all rolling windows

Tools

• ValueResearchOnline shows rolling returns
• Morningstar India
• Some paid screener and advisor platforms

If a fund's rolling returns are dramatically better than its peer median, dig deeper before investing. It might be a single great period that's already passed.

Takeaway. Point-to-point returns can be misleading. Start/end dates change everything. Rolling returns (every 5-year window averaged) show the typical investor experience. Look for median rolling return + worst rolling return for a realistic picture.