Sharpe ratio is a good measure to check the Risk-adjusted returns of the fundĪlso, it is equally important to only compare the funds within the same category.īelow is the list of large-cap funds with their respective Portfolio Turnover ratio and Sharpe ratio numbers. High risk-adjusted returns can only justify High portfolio turnover, else it clearly shows that the fund manager is struggling with the performance. Whereas Low portfolio turnover results in less transaction cost.īut since the overall cost has been capped by the regulator in the form of the Total expense ratio, so what is important to understand is if the High turnover or High cost is resulting into some benefit in high risk-adjusted returns or not. High Portfolio turnover ratio means the portfolio is being churned frequently and which in turn also means high transaction cost. ![]() What is good – Low Portfolio Turnover or High portfolio turnover? How to Interpret the Portfolio Turnover ratio? Or it may also be because of the High flows (inflow/Outflow) in the scheme, which in turn results into frequent buying and selling in the scheme.īut since portfolio turnover ratio is calculated on the past 1-year data so it is viewed as if the extreme cases as discussed above have already been averaged out, and majorly it shows only the fund management way of investing only. Volatile Markets, which sometimes results in patient fund manager to react and book profits or an aggressive fund manager to stay calm and wait for the right time to enter. It may be because of the fund’s strategy but the reasons could also be different. The calculation above tells that the ratio is calculated on the basis of the volume bought or sold, but it does not tell the Reasons of the Buying and Selling of stocks in a Portfolio. Lower of Stocks Bought or Sold / Average AUM = 900/1500 = 60% What impacts Portfolio Turnover ratio in a mutual fund? Then the Portfolio Turnover will be calculated as follows: In the last 1 year, if the Fund has purchased the stocks valuing Rs 1000 crore and sold stocks of 900 crores, and assuming the average AUM of Rs 1500 crore. Portfolio turnover is calculated by taking the lower of the total of new stocks purchased or sold over 12 months, divided by the fund’s average assets under management (AUM). Computation of Portfolio Turnover ratio in Mutual fund scheme Some believe in high active management and some prefer buying and holding. The same way the Fund managers has different strategies in a different mutual fund structure. It is just showing the kind of strategy the Investment manager is following. Please note that nowhere the ratio is saying which strategy is better. So, in this case, X’s Portfolio has a higher Turnover ratio and Y has low. X has a tendency to trade in a portfolio and do continuous buy and sell in this, whereas Y follows a strategy of buy and Hold. In other words, it tells how much the portfolio churning happened last 1 year. What is the Portfolio Turnover Ratio?Īs the name suggests, it is the turnover ratio in a portfolio. This article is about The What, Why and How of the Portfolio Turnover ratio, plus how to interpret and use it while selecting a Mutual fund scheme. There may be a reason for High or Low Portfolio turnover, so it has always to be seen in conjunction with the other ratios and performance evaluation. This ratio tells the strategy the fund management is following as well as the conviction of the fund manager in the designed portfolio.īut here again one has to know that the portfolio turnover ratio cannot be used in isolation. ![]() Among the other parameters, portfolio turnover ratio is also one to look at while selecting a mutual fund scheme.
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