Turnover Ratio

Loading the player...

What is the 'Turnover Ratio'

The turnover ratio is the percentage of a mutual fund or other investment vehicle's holdings that have been "turned over" or replaced with other holdings in a given year. The type of mutual fund, its investment objective and/or the portfolio manager's investing style will play an important role in determining its turnover ratio.

BREAKING DOWN 'Turnover Ratio'

For example, a stock index fund will have a low turnover rate, but a bond fund, whether passively or actively managed, will have high turnover because active trading is an inherent quality of bond investments. An aggressive small-cap growth stock fund will generally experience higher turnover than a large-cap value stock fund.

All things being equal, investors should favor low turnover funds. High turnover equates to higher brokerage transaction fees, which reduce fund returns. Also, the more portfolio turnover in a fund, the more likely it will generate short-term capital gains, which are taxable at an investor's ordinary income rate.

Turnover ratios for a mutual fund will vary from year to year, but the general range can be assessed by looking at the figure over a few consecutive years.

RELATED TERMS
  1. Annual Turnover

    The percentage rate at which a mutual fund or exchange-traded ...
  2. Overall Turnover

    A synonym for total revenues, commonly used in Europe and Asia. ...
  3. Receivables Turnover Ratio

    An accounting measure used to quantify a firm's effectiveness ...
  4. Asset Turnover Ratio

    The amount of sales generated for every dollar's worth of assets ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and ...
  6. Turnover

    1. In accounting, the number of times an asset is replaced during ...
Related Articles
  1. Fundamental Analysis

    How to Calculate a Turnover Ratio

    A turnover ratio measures a mutual fund’s level of trading activity in a given time period, usually a year.
  2. Investing Basics

    What Is Portfolio Turnover?

    Portfolio turnover measures a fund’s percentage of assets that are bought and sold by its manager over a year.
  3. Mutual Funds & ETFs

    Portfolio Turnover

    By Richard Loth (Contact | Biography)"Critics have long said that money managers who buy and sell frequently are confusing motion with progress." -Ian McDonald, The Wall Street Journal, August ...
  4. Retirement

    Turnover Ratios Weak Indicator Of Fund Quality

    This indicator is not as important as some investors might think.
  5. Investing

    Understanding Turnover

    Turnover has a number of different, but related, meanings depending on the context in which it is used. Generally, it means the number of times an item is replaced with a new or similar version ...
  6. Investing

    Receivables Turnover Ratio

    The receivables turnover ratio is a measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. Learn more about it here.
  7. Personal Finance

    AR & Inventory Turnover Is Key For These Sectors

    Accounts receivable and inventory turnover are two important ratios in the current asset category. We will also discuss the key industries that benefit from a thorough understanding of these ...
  8. Fundamental Analysis

    Reading The Inventory Turnover

    Inventory turnover is a ratio that shows how quickly a company uses up its supply of goods over a given time frame. Inventory turnover may be calculated as the market value of sales divided by ...
  9. Investing Basics

    4 Mistakes to Avoid When Choosing Mutual Funds to Invest in

    Mutual funds are a great way to build wealth but not all of them are the same. Investors have to be mindful of fees, turnover, redundancy and performance.
  10. Investing

    How to Rate Your Mutual Fund Manager

    What to really look for when you're deciding on a mutual fund.
RELATED FAQS
  1. What is considered a good turnover ratio for a mutual fund?

    Understand what the concept of turnover ratio represents in relation to a mutual fund, and how an investor can evaluate a ... Read Answer >>
  2. What is a good turnover ratio for a mutual fund?

    Learn about mutual fund turnover ratios and why the ideal ratio may differ based on the type of mutual fund and your investment ... Read Answer >>
  3. How should I use portfolio turnover to evaluate a mutual fund?

    Learn about the turnover rate for mutual funds, and understand the effect higher turnover may have on fund performance and ... Read Answer >>
  4. What does a high turnover ratio signify for an investment fund? (KNOW)

    Find out more about the turnover ratio, what the turnover ratio measures and what a high turnover ratio indicates about an ... Read Answer >>
  5. How can a mutual fund raise or lower its turnover ratio?

    Find out how a fund manager can raise or lower a fund's turnover ratio, including how to interpret this metric and what it ... Read Answer >>
  6. What is the difference between accounts payable turnover ratio and accounts receivables ...

    Learn the difference between the accounts payable turnover ratio and the accounts receivable turnover ratio. Understand what ... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center