I am a regular visitor to your website and use your website to make investments. I have a query regarding a parameter in basic details of a mutual fund called "Turnover." What does it mean and what is its significance?
- Anil Jadhav
Portfolio turnover ratio tells us how frequently the portfolio of the fund is churned. The amount in per cent says what percentage of portfolio gets churned in a year. So a 100% ratio will indicate that entire portfolio is churned in a year, whereas 200% means the entire portfolio got churned twice in a year. Funds which follow an aggressive investing style will have higher turnover ratio. Funds with a low turnover ratio implies longer holding period.
High portfolio turnover means fund has to incur more cost like brokerage which will be passed on to investor in form of high expense ratio. While large cap funds tend to have lower turnover as fund managers like to buy and hold a stable company for few years, mid and small caps will have comparatively higher turnover. If a higher turnover ratio does not make higher profits, it will add more to your cost which could become a problem.
This article was originally published on October 13, 2015.
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