One of the things we look at before buying a mutual fund scheme is its past return. Typically, the returns that a fund house publishes are of different tenures like the past 1-, 3-, 5-year periods and so on. But these returns reflect the performance over just two dates; the net assets value (NAV) of the start date (say, three years ago) and the latest NAV. These are called point-to-point returns as they measure a fund’s performance from one point to another.
In reality, a mutual fund scheme sees inflows and outflows almost every day. That is one of the reasons why, many times, our returns don’t match the funds’ returns that are advertised. Our entry and exit points may be different from what the fund showcases. A better, more analytical way to measure a fund’s performance, is rolling returns. Here, we take a series of returns (say, 1, 3 or 5 years) over a long period of time, and then take an average to see how the fund has performed. Rolling returns measure a fund’s consistency over a long period of time. It’s tough for investors to measure rolling returns for want of data and its time consuming; but some analyst websites give such returns.