Turnover Ratio

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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.

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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.

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RELATED FAQS
  1. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  2. What is considered a good turnover ratio for a mutual fund?

    What is considered a good turnover ratio for a mutual fund depends on the fund's composition and structure, its stated investment ... Read Full Answer >>
  3. Is there a situation in which wash trading is legal?

    Wash trading, the intentional practice of manipulating a stock's activity level to deceive other investors, is not a legal ... Read Full Answer >>
  4. What action is the SEC likely to take on 12b-1 fees?

    The Securities and Exchange Commission (SEC) may take action to impose greater regulation on how 12b-1 fees are used, or ... Read Full Answer >>
  5. What is considered a reasonable 12b-1 fee?

    A reasonable 12b-1 fee is generally considered to be 0.25% of the assets of the mutual fund. The maximum amount allowed for ... Read Full Answer >>
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