GETTING SMARTER SERIES

Portfolio Turnover Ratio

What is Portfolio Turnover ratio

It denotes percentage of fund holdings that have changed over a

What is it ?
period (typically during last one year)

Minimum ( Total value of stocks bought, Total value of stocks sold)

How is it calculated?
Average asset under management (AUM)

Portfolio Turnover ratio of 100% means entire portfolio has been

What does it
churned in last one year or 200% means portfolio has been churned
represent?
twice in a year
How to use Portfolio Turnover ratio in context of fund?

Low portfolio turnover typically means the fund follows BUY AND HOLD STRATEGY. It also means that the fund is
not incurring much expenses in buying and selling stocks. If the portfolio turnover is higher, then the fund will incur
higher transaction costs

It largely depends on the strategy that a fund manager follows and positioning of a particular scheme. The ratio may
shoot up or down temporarily when there is a change in the fund manager or any change in policy or fund strategy

Funds that have a dynamic asset allocation based on market valuations and funds with more aggressive strategies
may see a higher portfolio turnover

The ratio can also be used to compare funds with similar strategies or within the same category to assess if high or
low portfolio turnover has any impact on the performance

Index mutual funds typically have low portfolio turnover ratio as compared to actively managed mutual funds.
Frequency of the inflows/outflows and index rebalancing determines the portfolio turnover of Index funds
Illustration

Assume there are 2 funds with following portfolio parameters

FUND FUND
Total Value of Stocks bought in last 1 year 250 Cr Total Value of Stocks bought in last 1 year 400 Cr

Total Value of Stocks sold in last 1 year 150 Cr Total Value of Stocks sold in last 1 year 360 Cr
Average AUM 1000 Cr Average AUM 600 Cr

Min (250,150) Min (400,360)

Portfolio Turnover ratio 15% Portfolio Turnover ratio 60%
1000 600

Fund 1 has lower portfolio turnover ratio indicating fund uses “Buy & Hold “ strategy while
higher portfolio turnover ratio of Fund 2 indicates fund churns portfolio very rapidly
Disclaimer

Disclaimer: In this material DSP Investment Managers Pvt. Ltd. (the AMC) has used information that is publicly available, including
information developed in-house. Information gathered and used in this material is believed to be from reliable sources. The AMC
however does not warrant the accuracy, reasonableness and / or completeness of any information. The above data/statistic are given
only for illustration purpose. The recipient(s) before acting on any information herein should make his/their own investigation and seek
appropriate professional advice. This is a generic update; it shall not constitute any offer to sell or solicitation of an offer to buy units of
any of the Schemes of the DSP Mutual Fund.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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