Definition of Portfolio turnover:
The amount of time averaged from the time an investment is funded until it is repaid or sold.
The portfolio turnover measurement should be considered by an investor before deciding to purchase a given mutual fund or similar financial instrument. After all, a firm with a high turnover rate will incur more transaction costs than a fund with a lower rate. Unless the superior asset selection renders benefits that offset the added transaction costs they cause, a less active trading posture may generate higher fund returns.
Portfolio turnover is a measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by taking either the total amount of new securities purchased or the number of securities sold (whichever is less) over a particular period, divided by the total net asset value (NAV) of the fund. The measurement is usually reported for a 12-month time period.
How to use Portfolio turnover in a sentence?
- Growth mutual funds and any mutual funds that are actively managed tend to have a higher turnover rate than passive funds.
- Portfolio turnover is a measure of how quickly securities in a fund are either bought or sold by the fund's managers, over a given period of time.
- There are some scenarios in which the higher turnover rate translates to higher returns overall, therefore mitigating the impact of the additional fees.
- Funds that have a high rate usually incur capital gains taxes, which are then distributed to investors, who may have to pay taxes on those capital gains.
- The rate of turnover is important for potential investors to consider, as funds that have a high rate will also have higher fees, to reflect the turnover costs.
Meaning of Portfolio turnover & Portfolio turnover Definition