Turnover Rate

 

• When portfolio managers of mutual funds buy and sell stocks in the market to alter the fund portfolio, it is referred to as 'turnover'.
• While not necessarily a bad thing at the outset, turnover generates transaction fees and potential taxable events for fund investors.
• In general, lower fund turnover rates signal higher quality - but the turnover will depend on the type of fund and its stated investment strategy.
• Growth funds tend to have higher turnover rates as they invest more actively.
• On the other end of the spectrum, index funds should have very low turnover rates as they only trade when the index they're tracking changes composition.