Reading Fund Performance — Past Performance vs Future
Past performance is the main information available about a fund, but it does not show what comes next. This lesson explains measures that show how results varied: rolling returns, capture ratios and maximum drawdown, and what each can and cannot say.
Why the past is not a forecast
Every performance figure describes a period that is over. The markets, the portfolio and sometimes the fund manager change, so a fund's next period need not resemble its last. This is why performance figures carry the caution that past performance may or may not be sustained in future and is not a guarantee.
One period's return is also a thin piece of evidence, because it depends on the start and end dates. Looking at how results varied across many periods is more informative than one figure.
Rolling returns
Rolling returns repeat the return calculation for every period of a given length, for example every three-year period in a scheme's history. They show the range of outcomes across many start dates and market phases.
A single one-year return, a rating or one day's NAV each reflect one point in time. Rolling returns show the spread instead, though they too are a record of the past.
Capture ratios
Capture ratios compare a fund with its benchmark separately in rising and falling periods. An upside capture of 110% means the fund gained 1.1 times as much as the benchmark in periods when the benchmark rose. A downside capture of 85% means it fell 0.85 times as much in periods when the benchmark fell.
So upside capture above 100% means the fund gained more than its benchmark in rising periods, and downside capture below 100% means it fell less in falling periods. Both ratios depend on the benchmark and on the period measured.
Drawdown, ratings and switching
Maximum drawdown is the largest peak-to-trough fall over the period. It is measured from the highest point to the lowest point that follows it, and a later recovery does not change the figure.
Ratings and rankings are built from past data and change over time. A change of scheme made on the strength of any of these figures has its own consequences: a switch is a redemption, which is a taxable event and may carry an exit load, and a fresh purchase, which carries stamp duty.
Rules at a glance
One figure and the range behind it (illustrative)
Assumed figures: a scheme's factsheet shows a three-year CAGR of 18% at one month-end. A table of its rolling three-year returns over the previous ten years shows that the same calculation, started on other dates, gave results from 2% to 24% a year.
The 18% is one of those outcomes; the rolling table shows how much the answer depended on the start date.
Capture ratios and maximum drawdown (illustrative)
- Assumed figures, for arithmetic only. In the months when the benchmark rose, its average gain was 2.0% and the fund's was 2.2%. Upside capture = 2.2 ÷ 2.0 = 1.10, or 110%.
- In the months when the benchmark fell, its average fall was 2.0% and the fund's was 1.7%. Downside capture = 1.7 ÷ 2.0 = 0.85, or 85%.
- Drawdown: a fund's NAV rises from ₹80 to a peak of ₹120, falls to ₹90 and then recovers to ₹130. Maximum drawdown = (120 − 90) ÷ 120 = 30 ÷ 120 = 25%.
- The rise needed to get from ₹90 back to ₹120 is 30 ÷ 90 = 33.33%, which is larger than the 25% fall because it is measured from a lower base.
Result. Over this period the fund has an upside capture of 110%, a downside capture of 85% and a maximum drawdown of 25%; the later rise to ₹130 does not change the drawdown.
Key points
- Past performance may or may not be sustained in future and is not a guarantee.
- Rolling returns show how results varied across many start dates, not just one.
- Upside capture above 100% means the fund gained more than its benchmark in rising periods; downside capture below 100% means it fell less in falling periods.
- Maximum drawdown is the largest peak-to-trough fall over the period.
- Capture ratios, drawdown, ratings and rankings all describe a past period.
Common misunderstandings
- A high past return is not a forecast: past performance may or may not be sustained in future.
- Maximum drawdown is not the fall from the starting NAV: it is measured from the peak to the lowest point after it.
- Capture ratios are not fixed features of a fund: they depend on the benchmark and the period measured.
Questions people ask
What does a downside capture of 85% mean?
In periods when the benchmark fell, the fund fell 0.85 times as much, over the period measured.
Does a later recovery reduce a fund's maximum drawdown?
No. The figure records the largest peak-to-trough fall in the period, whatever happened afterwards.
Is a switch from one scheme to another a single transaction for tax?
No. It is a redemption, which is a taxable event, followed by a fresh purchase.
What this lesson relies on
- SEBI Master Circular for Mutual Funds, 20 March 2026 — performance disclosure and the caution on past performance; switches
- Standard definitions of rolling returns, capture ratios and maximum drawdown (plain mathematics)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.