Portfolio turnover ratio in mutual funds shows how often the fund manager buys and sells securities in a year. It is a percentage that tells how much of the fund's portfolio has changed over a specific period. A high turnover ratio means the fund is actively buying and selling, while a low ratio means fewer changes. This helps investors understand the fund’s strategy and possible costs.
Why is Portfolio Turnover Ratio Important?
The portfolio turnover ratio is important because it shows how actively the fund is managed. High turnover may mean higher costs due to frequent buying and selling. Low turnover often means a more stable, long-term investment approach. This ratio helps investors judge whether the fund’s strategy matches their investment goals.
How is Portfolio Turnover Ratio Calculated?
The turnover ratio is calculated by taking the lesser of total purchases or total sales in a year and dividing it by the average assets of the fund. For example, if a mutual fund has ₹100 crore in average assets and sells ₹40 crore worth of stocks, the turnover ratio is 40%. This number helps you see how much trading is done in the fund.
What is a Good Portfolio Turnover Ratio?
A good turnover ratio depends on the type of mutual fund. For equity funds, a turnover ratio between 20% to 50% is usually considered healthy. A very high turnover (like 100% or more) may mean higher costs and more risk. Long-term investors often prefer funds with a lower turnover ratio.
Does High Turnover Ratio Mean More Returns?
Not always. A high turnover ratio means the fund is actively managed, but it does not guarantee higher returns. It may lead to higher transaction costs and taxes. Some funds with low turnover have delivered better returns over time. It’s important to look at overall fund performance, not just turnover ratio.
How Does Portfolio Turnover Ratio Affect Investors?
Portfolio turnover ratio affects the cost and tax of your mutual fund investment. A high ratio may mean higher expenses and short-term capital gains tax. It also shows the fund manager’s trading style. If you are a long-term investor, you may prefer a lower turnover ratio to keep costs and taxes low.
Where Can You Find the Turnover Ratio of a Mutual Fund?
You can find the turnover ratio in the mutual fund’s factsheet or official website. It is also available on platforms like Angel One, where fund details are clearly shown. Always check this ratio before investing, especially if you are looking for low-cost, long-term funds.
Contact Angel One Support at 7748000080 or 7771000860 for mutual fund investments, demat account opening, or trading queries.
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