Portfolio Turnover Ratio measures how frequently a fund manager buys and sells securities — high turnover indicates active trading; low turnover indicates a buy-and-hold approach.
Portfolio Turnover Ratio = (Lower of purchases or sales in a year) ÷ Average AUM. A ratio of 100% means the entire portfolio was replaced once during the year. A ratio of 200% means the portfolio was traded twice over. High turnover has costs: more brokerage, higher market impact costs, and potential tax inefficiency (in direct equity portfolios). For mutual funds, these costs are embedded in the fund's performance. Low-turnover funds typically have lower implicit transaction costs.
If a fund with ₹1,000 crore AUM bought and sold ₹2,000 crore worth of stocks in a year, its turnover is 200%. High turnover = lots of buying and selling = higher transaction costs = potentially dragging returns. An index fund has near-zero turnover (it only trades when the index changes). An active fund averaging 80–100% turnover is actively managed but with manageable costs. Above 200%+ turnover is aggressive trading — costs are a real concern.
Disclosed in fund's annual report and available on data platforms.
Equity index funds: ~5–15% (minimal rebalancing).
Actively managed equity funds: 50–150% typical.
Actively traded funds: 200–400% (momentum strategies).
High turnover itself isn't bad if the manager is skilled — but it adds a cost hurdle.