Yearly, Continual, and Progressive Returns: Definitions, Computation, and Significance
In the world of investments, understanding the performance of funds and assets is crucial for making informed decisions. Three key measures that help investors evaluate the past performance of an investment are annual returns, trailing returns, and rolling returns.
Annual returns, as the name suggests, represent the return earned in a specific calendar year. These returns are useful for understanding year-to-year performance and for comparing returns from the same calendar periods across years. However, they can be impacted by timing or market cycles, and they do not show the performance consistency or volatility throughout the year.
Trailing returns, on the other hand, offer a more holistic view by annualizing performance over recent periods ending at the current date. This method is not bound to calendar years, and it helps compare funds or investments meaningfully without being restricted by them. Trailing returns give a better understanding of average growth or decline, essential for evaluating medium-term investment performance. However, they may mask volatility or inconsistent returns.
Rolling returns, which are calculated for multiple overlapping periods, provide insight into the consistency and volatility of returns over time. They show how returns vary across different starting points, indicating stability or risk. This information is crucial for risk assessment beyond average returns.
The Nippon India Small Cap Fund, for instance, has outperformed its benchmark in all five years and beaten the category average in four out of five years. Using the example of 2021, the annual return for the Nippon India Small Cap Fund was calculated as 74%. However, focusing on only one type of return would mean losing sight of the big picture when making investment decisions.
To make more informed decisions, it is recommended to use annual returns to review year-specific performance and benchmark against market cycles. Trailing returns are useful for assessing a fund or asset’s average performance over key recent periods, such as the last three or five years, which is useful for initial screening and comparison among alternatives. Rolling returns, on the other hand, enable investors to analyze how the investment performed over multiple overlapping periods, helping to evaluate consistency and select investments with stable performance over time, which can reduce risk and enhance confidence in the investment’s reliability.
In summary, a comprehensive investment evaluation involves combining these return metrics: annual returns for year-specific insights, trailing returns for recent average performance, and rolling returns for consistency and risk analysis. This multi-angle assessment helps investors make more informed decisions tailored to their risk tolerance and investment horizon.
[1] Source: Investopedia, "Annual Return vs. Trailing Return vs. Rolling Return," accessed on February 1, 2023,
By incorporating various return metrics, personal-finance management can be enhanced and more informed investment decisions can be made. Tax saving opportunities can be maximized by investing in mutual funds that demonstrate consistent performance over multiple overlapping periods, as seen in the case of the Nipper India Small Cap Fund, as evaluated using rolling returns. This comprehensive approach, which includes the use of annual returns for year-specific insights and trailing returns for recent average performance, can help reduce risk and increase confidence in long-term investments.
