The Shocking Truth: What Your Mutual Fund Returns Are Hiding From You!

When it comes to evaluating the performance of a mutual fund, investors often find themselves surrounded by a plethora of technical terms and jargon. Two such terms that can leave even the most seasoned investors perplexed are point-to-point returns and rolling returns. In this article, we will delve into the world of mutual fund investments and explore the difference between these two types of returns, helping you make more informed decisions about your investments.

Point-to-point returns, as the name suggests, measure the return of a mutual fund from a specific starting point to a specific ending point. This could be the return from the beginning of the year to the end of the year, or from the inception of the fund to the current date. Point-to-point returns provide a snapshot of the fund's performance over a specific period, giving investors an idea of how the fund has fared during that time. For instance, if a fund has given a point-to-point return of 15% over the past year, it means that if you had invested Rs. 100 at the beginning of the year, you would now have Rs. 115.

However, point-to-point returns have a significant limitation. They only provide a narrow view of the fund's performance and do not account for the ups and downs that the fund may have experienced during the period. For example, a fund may have given a point-to-point return of 15% over the past year, but it may have fluctuated wildly between 30% and -20% during the year. This volatility can be a cause for concern for many investors, as it may indicate that the fund is taking excessive risks to achieve its returns.

This is where rolling returns come into the picture. Rolling returns measure the return of a mutual fund over a specific period, but unlike point-to-point returns, they are calculated over a series of overlapping periods. For instance, if you want to calculate the rolling returns of a fund over a 1-year period, you would calculate the return from January to December, February to January, March to February, and so on. This gives you a more comprehensive view of the fund's performance, as it takes into account the various ups and downs that the fund may have experienced during the period.

Rolling returns can provide a more accurate picture of a fund's performance, as they account for the volatility that the fund may experience over time. For example, if a fund has a rolling return of 10% over a 1-year period, it means that the fund has consistently given returns of around 10% over each 1-year period. This can give investors greater confidence in the fund's ability to deliver steady returns over the long term.

In conclusion, while both point-to-point and rolling returns have their uses, rolling returns provide a more comprehensive view of a fund's performance. By taking into account the various ups and downs that a fund may experience over time, rolling returns can give investors a more accurate picture of the fund's ability to deliver steady returns. As an investor, it's essential to understand the difference between these two types of returns and to use rolling returns as a key metric when evaluating the performance of your mutual fund investments.

Investors should also keep in mind that past performance is not necessarily a guarantee of future results, and it's essential to consider other factors such as the fund's investment strategy, expense ratio, and asset allocation before making any investment decisions. By doing your research and evaluating the performance of your mutual fund investments using rolling returns, you can make more informed decisions about your investments and achieve your long-term financial goals.