Portfolio Turnover Ratio — Mutual Fund Term Explained

How frequently a fund buys and sells its holdings. High turnover = more trading costs. Lower is generally better for long-term investors.

Portfolio turnover ratio measures how often a fund replaces its holdings within a year. A 100% turnover means the fund replaced its entire portfolio once in the year. High turnover generates more brokerage costs, market impact and transaction taxes.

Formula

Turnover Ratio = (Lesser of Purchases or Sales) ÷ Average AUM × 100

Related terms

• Expense Ratio — The annual fee charged by a mutual fund as a % of AUM. Covers management fees, operational costs and commissions. Deducted daily from NAV.
• Benchmark — The market index a fund is compared against. A fund manager must beat the benchmark consistently to justify active management fees.
• Fund Manager — The professional responsible for managing a mutual fund portfolio — making buy/sell decisions to achieve the stated objective.

Browse the full mutual fund glossary, or see this concept in action in the fund screener.