Turnover Ratio

AAA

DEFINITION of 'Turnover Ratio'

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.

INVESTOPEDIA EXPLAINS '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. Top Holdings

    The highest volume of publicly traded assets held by an individual, ...
  2. Growth Fund

    A diversified portfolio of stocks that has capital appreciation ...
  3. Index

    A statistical measure of change in an economy or a securities ...
  4. Expense Ratio

    A measure of what it costs an investment company to operate a ...
  5. Annual Turnover

    The percentage rate at which a mutual fund or exchange-traded ...
  6. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
Related Articles
  1. Mutual Funds & ETFs

    Stop Paying High Mutual Fund Fees

    Discover how investment strategies and expense ratios impact your mutual fund's returns.
  2. Mutual Funds & ETFs

    Enhanced Index Funds: Can They Deliver Low-Risk Returns?

    These funds may look appealing. Find out whether they can really live up to all of their promises.
  3. Retirement

    A Brief History Of The Mutual Fund

    This popular investment vehicle has seen its share of ups and downs, successes and scandals. Read all about it!
  4. Retirement

    The ABCs Of Mutual Fund Classes

    Do you understand how the various types of shares differ? We give you the pros and cons of each.
  5. Retirement

    Turnover Ratios Weak Indicator Of Fund Quality

    This indicator is not as important as some investors might think.
  6. Mutual Funds & ETFs

    Mutual Fund Basics Tutorial

    Learn about the basics - and the pitfalls - of investing in mutual funds.
  7. Mutual Funds & ETFs

    What are the risks involved in keeping my money in a money market account?

    Setting aside funds in a money market account can be a safe investment strategy, but investors should be aware of the risks inherent to money market options.
  8. Mutual Funds & ETFs

    How much of my total assets should I be keeping in my money market account?

    Investing a portion of total assets in a cash position such as a money market account provides investors access to funds in the case of an emergency.
  9. Mutual Funds & ETFs

    Does it make sense for me to have a money market account if I don't want to buy any securities?

    Saving funds within a money market account or mutual fund does not have to be limited to those wanting to buy or sell securities in the near future.
  10. Mutual Funds & ETFs

    Why would you keep funds in a money market account and not a savings account?

    Read about the differences between money market accounts and savings accounts, and see why a depositor would elect a money market over a savings account.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center