Turnover ratio


Turnover Rate

The ratio at which a fund or portfolio trades the securities in it. A higher turnover rate indicates active management; if it becomes very high, this may indicate that the broker or manager is trading securities for the sake of collecting more in fees. It is calculated as the trading volume of the fund or portfolio as a percentage of the entire portfolio. See also: Prudent person rule.

Turnover ratio.

A mutual fund's turnover ratio measures the percentage of holdings that the fund sells, or turns over, in a year.

For example, if a stock fund manager has a portfolio of 100 stocks at the beginning of the year, sells 75 of them and buys 75 different stocks, the turnover rate of the fund is 75%.

Some investors look for funds with lower turnover ratios, since limited trading may help to minimize capital gains taxes and trading costs. However, a high turnover ratio can also produce strong returns, which can offset the added costs and produce a net gain.