A mutual funds (MF) scheme remains an ideal investment tool to achieve financial goals. However, investment in a particular MF scheme shouldn’t be undertaken solely on the basis of poring over their performance in the previous years.
An investor should also consider other factors such as long-term returns and risks. It is suggested to consider a five-year rolling returns compared over the full history of the fund or versus a benchmark and the industry.
Rolling returns, also referred to as rolling period returns or rolling time periods, is the average of all previous returns of a scheme based on historical data gathered over a specific time period.
An investor is required to decide the overall period for calculation of the returns of the MF scheme.
This is followed by determining the intervals on which an investor wants to see the returns shown up after the calculation.
With rolling returns, it is also possible to find out the returns of recurring investments such as systematic investment plan (SIP). Besides, it can also be useful for seeing the average returns on a MF scheme.
Another factor is to take into the risks that MF scheme is taking to deliver returns. For instance, in case of equity mutual funds, volatility and liquidity risks are required to be taken into account.
Similarly, interest, credit, inflation, concentration, currency, and rebalancing risks are to be considered in the case of debt mutual funds.
However, with adoption of certain smart investment techniques such as selecting a diversified portfolio, investing in high-credit securities, putting money in diverse asset classes and sectors and so on, can go a long way to mitigate these risks in mutual funds scheme investment.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.