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. Passive Investing

    An investment strategy involving limited ongoing buying and selling ...
  3. Tax-Efficient Fund

    A mutual fund in which structure and operations are based on ...
  4. Annual Turnover

    The percentage rate at which a mutual fund or exchange-traded ...
  5. Expense Ratio

    A measure of what it costs an investment company to operate a ...
  6. Index

    A statistical measure of change in an economy or a securities ...
Related Articles
  1. Stop Paying High Mutual Fund Fees
    Mutual Funds & ETFs

    Stop Paying High Mutual Fund Fees

  2. Enhanced Index Funds: Can They Deliver ...
    Mutual Funds & ETFs

    Enhanced Index Funds: Can They Deliver ...

  3. A Brief History Of The Mutual Fund
    Retirement

    A Brief History Of The Mutual Fund

  4. The ABCs Of Mutual Fund Classes
    Retirement

    The ABCs Of Mutual Fund Classes

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center