What rolling returns tell us about a Mutual Fund performance
Most of the Mutual Fund rating websites list the past return as on today. It helps to gauge how fund have performed in past as of today, but doesn't tell how fund has performed if the returns were calculated in past date.
For example 3-year return for a fund may be 20% today, but what about 3-year returns of the same fund in past years.
This is where concept of rolling returns come into play and is more effective tool, to determine the consistency of a fund in delivering good returns year after year.
I wish mutual fund website could incorporate this feature and also rate the funds accordingly.
Lets try an example using HDFC TOP 200 fund which has history of more than 20 years and it would be interesting to know, how the fund has performed in past based on rolling returns.
I have calculated rolling returns of the fund , for 3-year, 5-year, 7-year, 10-year and 15-year period based on NAV on 1st of march.
Over a 3 year period returns are unpredictable and therefore its good indication of what to expect from a equity mutual fund over this period of time.
Many new investors look at recent 3 or 5 year performance and assume similar returns would be available in future. But looking at data it clear that even 5-year returns of a mutual fund can be less than returns from a FD or PPF . This fund delivered a 5 year return of 6.53% in 2016, which is lower than returns from fixed income instruments.
Experts always suggest to have a long investment horizon when it comes to equity Mutual Funds and long I guess means 7 years or more..
Over 7 year or more this fund has consistently beaten every fixed income instrument and for this reason I would recommend everyone to to stay invested for minimum 7 year.
For example 3-year return for a fund may be 20% today, but what about 3-year returns of the same fund in past years.
This is where concept of rolling returns come into play and is more effective tool, to determine the consistency of a fund in delivering good returns year after year.
I wish mutual fund website could incorporate this feature and also rate the funds accordingly.
Lets try an example using HDFC TOP 200 fund which has history of more than 20 years and it would be interesting to know, how the fund has performed in past based on rolling returns.
I have calculated rolling returns of the fund , for 3-year, 5-year, 7-year, 10-year and 15-year period based on NAV on 1st of march.
Over a 3 year period returns are unpredictable and therefore its good indication of what to expect from a equity mutual fund over this period of time.
Many new investors look at recent 3 or 5 year performance and assume similar returns would be available in future. But looking at data it clear that even 5-year returns of a mutual fund can be less than returns from a FD or PPF . This fund delivered a 5 year return of 6.53% in 2016, which is lower than returns from fixed income instruments.
Experts always suggest to have a long investment horizon when it comes to equity Mutual Funds and long I guess means 7 years or more..
Over 7 year or more this fund has consistently beaten every fixed income instrument and for this reason I would recommend everyone to to stay invested for minimum 7 year.
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| HDFC TOP 200 Rolling returns |
Comments
Great post there. I am bit surprised there is no mention of mirae. how would you rate their schemes on above parameters.
Cheers
Sushil
Mirae has emerged one of good fund houses in recent past and deserves a place in recommendation. I mostly concentrate my analysis on Funds which have more than 10 years of history, i am sure Mirae will find its place some day.
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