What does a mutual fund's Portfolio Turnover Ratio indicate?

1. Portfolio Turnover Ratio represents the churn of the fund portfolio or the percentage of the portfolio holdings that have changed over a time period.

2. Portfolio turnover is calculated by dividing either the total purchases or total sales, whichever is lower, by the average of the net assets. The measurement is usually reported for a 12-month time period.

3. If a portfolio has a low turnover, it could mean that the fund follows a buy and hold strategy and that the fund manager has high conviction in his picks.


4. High portfolio turnover indicates high transaction or trading costs, and therefore impacts the return for the investor.

5. A high turnover with high returns can be expected. However, a high turnover with lower returns is a indicator for review.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.