Our shared objective when investing in mutual funds is to increase our hard-earned money. Your financial future is greatly influenced by the returns on your investments, whether you’re saving for your child’s school, organizing a dream vacation, or safeguarding your retirement. However, mutual fund returns are not always clear-cut, and knowing the different kinds of returns can help you make better choices.Understanding the performance of your investments enables you to assess and improve them over time.
Additionally, mutual funds are a long-term, tranquil investing option, whereas stocks are renowned for producing multibagger returns. This post will explain the types of mutual fund returns.
Types of mutual fund returns
There are the following types of mutual fund returns;
Rolling returns
A more consistent picture of a fund’s performance is offered by rolling returns, which calculate returns at regular periods. Rolling returns, as opposed to absolute returns, aid in mitigating any biases that can result from selecting particular time periods.
Example: In order to assess a fund’s three-year rolling returns from 2015 to 2020, you must compute the return for each of the following three-year periods: 2015–2018, 2016–2019, and 2017–2020. Rolling returns reduce the chance of selecting an exceptionally strong or weak period and provide a more balanced picture of the fund’s performance throughout a number of time periods.
Trailing returns
The returns produced by a mutual fund over a given time frame, ending today, are known as trailing returns. You can use these returns to evaluate the fund’s performance over a period of one, three, five, or even ten years from the current date.
Example: Assume that on January 1, 2024, you look up a mutual fund’s five-year trailing return. The performance of the fund from January 1, 2019, to January 1, 2024, will be taken into account in this return. Over these five years, if the fund increased from Rs 1,00,000 to Rs 1,61,051, the trailing return would be 10% annually.
Relative returns
A mutual fund’s success is gauged by its relative returns when compared to another fund or a benchmark index. It enables you to determine whether the fund has performed better or worse than its peers or a common benchmark.
Absolute returns
The percentage gain or decrease in your investment over a given time period, without taking time duration into account, is known as the absolute return. It only makes a comparison between the starting and final values of your investment.
Example: Your absolute return would be 20% if you invested Rs 1,00,000 in a mutual fund and it increased to Rs 1,20,000 after two years. The computation is simple: [(Rs 1,20,000 – Rs 1,00,000) / Rs 1,00,000] is the absolute return. * 100 = 20% For short-term investments or to determine how much the value of your portfolio has increased, this kind of return is helpful.
