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October 18, 2025October 22, 2025

What Is Portfolio Turnover Ratio in Mutual Funds?

Understanding the Portfolio Turnover Ratio in Mutual Funds

Investing in mutual funds is a popular way to diversify your portfolio and achieve long-term wealth creation. However, to make informed decisions, investors must understand the nuances of fund management. One key metric that often goes unnoticed is the Portfolio Turnover Ratio.

The Portfolio Turnover Ratio reveals how frequently a fund’s holdings are bought and sold in a given period. Understanding it is crucial because it can impact expense ratio, tax implications, and the overall performance of your investments—especially if you are investing through a SIP.

What Is the Portfolio Turnover Ratio?

The Portfolio Turnover Ratio indicates the percentage of a mutual fund‘s holdings that are replaced within a year. It reflects the fund manager’s trading activity and gives investors insight into the fund’s investment strategy.

The formula to calculate turnover ratio is:

Where:

Purchases: Total value of securities bought.
Sales: Total value of securities sold.
Average Net Assets: The average value of the fund’s assets during the period.

Example:
Suppose a mutual fund has $100 million in average assets, with $60 million in purchases and $40 million in sales. The Portfolio Turnover Ratio is calculated as:

This means that 40% of the fund’s holdings were replaced during the year.

Pro Tip: A moderate turnover ratio is generally better for SIP investors to avoid excessive transaction costs and tax liabilities.

High Turnover vs. Low Turnover Mutual Funds

The turnover ratio can vary widely depending on whether a fund is actively or passively managed. Here’s a comparison:

Feature	High Turnover Funds	Low Turnover Funds
Management Style	Actively managed	Passively managed (index funds)
Typical PTR	75%–150%	10%–40%
Cost Implications	Higher transaction costs	Lower transaction costs
Tax Impact	More short-term capital gains	Fewer taxable events
Return Potential	Higher if strategy succeeds	Market-matching returns
Risk Exposure	More volatile	Relatively stable

High Turnover Funds

Active Management:Fund managers frequently buy and sell securities to exploit market opportunities.
Potential for Higher Returns:For example, the HDFC Mid-Cap Opportunities Fund had a turnover ratio of 95% in FY 2023, delivering a 15% annualized return over 3 years.
Increased Costs & Tax Impact:High turnover ratio mutual funds incur greater brokerage fees and short-term capital gains taxes.

Low Turnover Funds

Passive Management:Funds like the Nippon India Index Fund – Nifty 50 Plan have a portfolio turnover ratio of just 15–20%.
Cost Efficiency:Less trading means lower expense ratio and fewer tax liabilities.
Steady Returns:Returns may closely track the benchmark index, offering stability for SIP

How the Turnover Ratio Impacts Returns

The turnover ratio is not just a number; it has tangible effects on your investment:

Transaction Costs:Every buy/sell generates brokerage fees. High portfolio churn in mutual funds can reduce net returns.
Tax Implications:High turnover ratio leads to more short-term capital gains, taxed at 20% for equity funds in India, compared to 12.5% for long-term gains.
Risk Exposure:Frequent trading can increase market volatility exposure. A fund with a high turnover ratio might outperform the market in bullish periods but may also underperform during corrections.

Investor Insight: If you invest via a SIP, prefer funds with moderate or low turnover ratio to reduce tax and cost impact.

How to Calculate Turnover Ratio: Simplified

To calculate the portfolio turnover ratio:

Determine total purchases and sales of securities in a year.
Identify the average net assets of the fund for the same period.
Apply the formula:

Example:
A fund has $80 million in average assets, purchases worth $50 million, and sales worth $30 million.

This means roughly 38% of the fund’s portfolio was replaced in the year.

Expense Ratio and Tax Implication of High Turnover

Expense Ratio

The expense ratio shows the percentage of assets deducted annually to cover management fees, operational costs, and other charges. A high turnover ratio often increases the expense ratio, especially for actively managed funds.

Stat Insight: Actively managed equity funds in India have an average expense ratio of 1.8%, compared to 0.6% for index funds with low portfolio turnover ratio.

Tax Implication of High Turnover

High portfolio churn in mutual funds can trigger frequent taxable events:

Short-term capital gains (STCG) on equity: 20%
Long-term capital gains (LTCG) above ₹1 lakh: 10%

Example: If a fund sells holdings frequently and generates ₹1 lakh in STCG, a tax of ₹20,000 will apply, reducing investor returns.

Pro Tip: For long-term SIP investors, low-turnover funds often offer better after-tax growth.

Real Investor Scenario

Consider two SIP investors investing ₹10,000/month for 5 years:

Investor	Fund Type	PTR	Expense Ratio	Avg Annual Return	Tax Impact	Net Return
A	Actively Managed Equity Fund	95%	1.8%	15%	High STCG	12.5%
B	Passive Index Fund	20%	0.6%	12%	Low LTCG	11.3%

Despite higher gross returns, Investor A’s high turnover ratio mutual fund results in a lower net return due to costs and taxes.

Historical Context & Statistics

Equity-linked mutual fundsin India historically show an average portfolio turnover ratio of 60–80% for active funds.
Index funds maintain turnover ratiosbelow 25%, reflecting minimal trading.
Over the past decade, funds with high portfolio churn in mutual fundshave occasionally outperformed during bullish cycles but underperformed during corrections, highlighting the importance of understanding turnover ratio impact on returns.

VSRK Capital’s Perspective

According to VSRK Capital, an ideal portfolio turnover ratio should align with the fund’s investment strategy — not too aggressive, yet not too static.
Their philosophy emphasizes transparency, goal-based investing, and tax-efficient wealth creation.

VSRK Capital advises investors to:

Choose funds where turnover supports the long-term goal of sustainable wealth creation.
Focus on net returns after costs and taxes, not just raw performance numbers.
Maintain discipline in SIPand diversified fund selection, guided by solid research.

In short, a well-balanced turnover ratio contributes to long-term stability, efficient tax outcomes, and better wealth growth — principles at the core of VSRK Capital’s investment approach.

Conclusion

The Portfolio Turnover Ratio is a vital metric that every mutual fund investor should monitor. High portfolio churn in mutual funds can amplify costs and taxes, affecting net returns. Meanwhile, low turnover ratio funds often provide cost efficiency and steady growth—ideal for long-term SIP investors.

By understanding the turnover ratio impact on returns, evaluating expense ratio, and considering tax implication of high turnover, you can make smarter investment choices tailored to your financial goals.

Investor Insight: While high portfolio turnover ratio can be exciting for aggressive investors, a balanced approach focusing on both returns and cost-effectiveness ensures long-term wealth creation.

For investors looking to hedge inflation and diversify portfolios, commodity ETFs can be a smart, tactical choice—when used with discipline and expert guidance.

FAQs

What is a good portfolio turnover ratio?

A good turnover ratio depends on the fund type. Actively managed funds may have higher portfolio turnover ratio mutual funds (70–120%), while passively managed funds have lower ratios (10–30%). Compare similar funds before investing.

How does portfolio turnover ratio affect taxes?

High turnover ratio leads to frequent short-term capital gains, increasing the tax burden and reducing net returns. Low turnover ratio funds incur fewer taxable events.

Can a high turnover ratio be beneficial?

Yes, if the fund manager’s strategy is effective. However, consider associated expense ratio and tax implication of high turnover.

How can I find a fund's turnover ratio?

The turnover ratio is disclosed in the fund’s annual report, prospectus, and financial data platforms like Value Research Online or Morningstar India.

Should I avoid high turnover ratio mutual funds?

Not necessarily. High turnover ratio mutual funds can deliver higher returns but come with increased costs and tax implications. Assess based on your SIP goals and risk appetite.

September 22, 2021

Should I stop SIP at Market High?

The stock markets are making all-time highs. Many think – too fast, too soon! We could sense that all those questions are back such as should I stop my SIPs? Or should I pull out money invested in my funds? Is the time right to add more funds to stocks? Or should invest in gold/real estate? Now the problem arises is that what should be done to find the correct answers for above stated what shall be done. Investing success is about 99% temperament and only 1% about where you invest.

We have huge ocean of investment avenues and various hot ideas that keep floating around, the question is how to react in such times. It is very well said, “Your biggest enemy is yourself.” That’s where thought process of investors comes into picture. Think of a state of mind as a predefined thinking guide but not as a shortcut to meet goals. It is something that makes you behave in a certain manner.

As far as investing and wealth is concerned, the model that works is Asset Allocation. It acts as a FOMO antidote. For your information, FOMO is Feeling of Missing out. At any time, it is difficult to know which investment is best. Asset Allocation allows us to take a chunk of several avenues that is worth investing in and market cycles does wonders.

Any investor rebalances with time, to check that did the portfolio was a thumb-up or a thumb-down. Don’t stress on the positioning of the market, or if product is expensive to get into or get out of. The idea of allocating in various types of investments wherein few can be highly volatile, & others less. Some active, some passive. It helps you diversify which encourages prudence, risk management and good investment practices.

We live in a world of Volatility, Uncertainty, Complexity and Ambiguity. A diversified portfolio, it acts as a cushion from the impact of unknowns. Investor is aware that there is a chance of finding comfort as the other ones are working towards long term accumulation.

It gets you to act. The portfolio is to be rebalanced periodically based on the rules set before, without getting mixed up in present emotions. It helps in getting Behavioral Alpha. Investments when managed well, the alpha is assured. One never pulls out of markets when it’s all-time high. One never stops SIPs. Invest when there is blood around. One should patiently move from one asset to another, without a fuss.

VSRK suggests that even when markets are at all-time highs, our experts tells us to continue investments as per allocations. Be active in SIPs. Rebalancing of asset allocation is better but one can sell the chunk of the money that is needed urgently. For lumpsum investing, consider the kind of a stomach you have in terms of funds and risk appetite.

February 5, 2021

5 Things You Should Know Before You Start Investing

Investment is not a one-step process but an entire series of steps taken to reach the financial goal. It encompasses making various financial decisions and finding the right investment alternative while minimizing any associated risks. Investing is affected by a large number of factors, so it is crucial to keep in mind some financial aspects. Today we will talk about five things you should consider before you leap.

Know Your Investment Goals
Every person who is desirous of investing should have a stated purpose of investment. It could be anything like buying a house, new car, child education and marriage or planning retirement. You should know what you want to save your money for and especially how much you want to save. Your investment goals are a crucial factor to decide the investment alternatives.

Know Your Financial Condition
Any investor, whether she is a billionaire or a new associate in a law firm, has some financial limitations. It is necessary to know how much would you be able to invest in the said period of investment. The purpose of investing funds would be to generate sufficient returns to help you achieve your financial goals, whatever they are. So, it is necessary to know how much investment you would be able to support and where you can cut corners.

Know the Importance of Emergency Funds
One of the main reasons why investments fail is that people consider their investment as emergency funds. However, this is never the case. For example, when you start a fund for buying a new house, then that money is being kept aside for buying that new house only. Now, what people do is that whenever they face any financial emergency, they break these funds, thereby hampering the investment cycle. Such acts lead to lower accumulated wealth. These emergencies, as the name suggests sprung anytime and you have no control over them. So, it is always advisable to consider an emergency fund. It would safeguard you in case of any mishap.

Know Your Asset Allocation
There are various investment avenues available in the market. You can invest in precious metals like gold & silver, stocks, bonds, mutual funds, real estate or a combination of all of the above. You may or may not want to invest in all of them. Each of them has its risks, rewards and characteristics. Therefore, you should be well aware of the investment avenues you have selected. Knowing each kind of investment avenue helps you to create a diversified portfolio and enhances your chances to reach your financial goals.

Know Your Risk Appetite
When someone wants to invest his money, there are majorly only two things in his mind. First is the reward and second is the associated risk of investment into that avenue. Every person has a different risk appetite depending upon his age, financial situation, priorities, etc. You should identify the level of risk you are willing to take to achieve your financial goals. This factor is one of the main aspects when you choose your investment avenues. People who have a high-risk appetite go for equity funds; they are risky but give good returns to its investors. Debt mutual funds are safer but provide low returns and are suitable for people with low-risk appetite. Hybrid mutual funds are known to yield better returns than debt funds and are less risky than equity funds, so they are suitable for moderate risk-takers.

September 24, 2020

What are Difference between ULIP and Mutual Fund

This is one of the most commonly asked questions by a potential investor who is often confused by the mix use of these 2 investment instruments. Many financial planners use these terms interchangeably. However, ULIP and Mutual Fund are two separate concepts. We have explained the meaning of ULIP and Mutual Fund and the difference between them.

Mutual fund

Mutual fund is an investment plan where your money is managed by a portfolio manager. He puts your money into multiple companies on the basis of your investment objectives and associated risks. For every investment made in mutual fund, certain units of that fund are allocated to the investor. There are multiple types of mutual funds available in the market; each having its investment objectives, liquidity and risks.

Unit Linked Investment Plans (ULIP)

Unit linked investment plans are a hybrid combination of investment and insurance schemes. Herein, a small portion of the monthly premium goes to secure life insurance and the rest is invested just like a mutual fund.

Difference between ULIP and Mutual Fund

Basis	Mutual Funds	ULIP
Regulating Authority	SEBI	IRDAI
Product Type	Investment	Insurance
Liquidity	Highly liquid	Less liquid
Potential Returns	High returns subject to market risks	Low returns as part of it are invested in the insurance
Lock-in period	Only in ELSS	3 to 5 years
Tax benefits	ELSS are eligible for deduction under 80C. Long Term- Equity Funds: Tax Free Debt Funds: 10% or 20%	Deduction under 80C
Charges	Low- 1% to 2.5%	No upper limits
Portfolio Disclosure	Mandatory Disclosure	No such requirement

Regulating Authority and Product Type

Mutual funds are an investment product and are regulated by the Securities Exchange Board of India (SEBI). The Unit linked investment plan is essentially an insurance plan with additional investment option.

Liquidity and Lock-in Periods

Multiple mutual funds options are available in the markets viz. equity, debt, growth, index, hybrid, etc. Most of the mutual funds are highly liquid as compared to less liquid ULIPs, as ULIPs are meant for a relatively long time. Usually, only ELSS mutual funds have a lock-in period, rest all mutual funds can be redeemed easily almost anytime.

Potential Risks & Returns

ULIPs are less prone to market risks are they are insurance instruments. Mutual funds are comparatively riskier as they invest directly into the market which is highly market. This volatility is also the reason why mutual funds give a higher return than ULIPs. ULIPs offer a safer but lower return as a chunk of it is invested in insurance policies.

Portfolio Disclosure

As per the rules of SEBI, the companies have to maintain a strict disclosure of transactions and such other information. SEBI has directed all fund managers to send the portfolio statement via email to its unit holders every month. Such rules and regulations help to ensure transparency and accountability. On the other hand, there is no such regulation for ULIPs.

Tax Benefits & Charges

The charges associated with mutual funds are as low as 1% to 2.5% which is far lesser than that of ULIPs. Charges on ULIPs have been reported to be as high as 18% and there are no such upper limits. ULIPs are eligible for deduction under section 80C. The ELLS category of mutual funds is eligible for deduction 80C. Mutual funds options other than ELSS do not have deduction under section 80C but they provide additional tax benefits such as returns on mutual fund up to a certain limit is exempt. Also, as per general reports LTCG on such mutual funds attracts much lesser tax.

September 9, 2020

How its Benefits of Investing in Mutual Fund Online

Investment in mutual fund online is gaining popularity as the easiest ways of investing. Such investment could be done by accessing our Website or downloading the VSRK mobile application.

Benefit of investing in mutual funds online

There are various benefits of investing in mutual fund online. We have mentioned some of them as following-

Online Registration and E-KYC

The customers can register online through filing the necessary information and submitting the required documents viz. PAN card and Aadhar card. Such information is sent to the backend for verification. Once the information is verified you are ready to invest.

Option to Invest in Small Amounts

Investing in mutual fund online gives you the option of investing in various securities in small amount. You have the option to start your SIPs with just rupees 500 per month. By keeping out a small portion of your salary aside you would be able to accumulate a wealth over a long time.

Ease of convenience

Investment in mutual funds online is one of the simplest and the easiest form of investment. in this you just need to have the access to the website or mobile application of your AMC. You can access your portfolio information, current stock rates and various other information just through one click.

Liquidity

One of the most important benefit of online investment in mutual funds is the liquidity. the investors have the option to redeem the unit at any point of time. However, mutual funds do have factors like pre exit penalty and exit load we should be taken into consideration before redemption.

Security of funds

All the mutual fund related transaction come under the scope of SEBI. SEBI is a government regulated organization regulates AMCs to maintain transparency and accountability of transactions. Its aim is to safeguard the investors and solve their grievances. Further, SEBI makes it compulsory for all mutual funds to disclose their portfolios every month.

August 6, 2020

What Is the Debt-Snowball Method?

Legendary investor, Warren Buffet has called the power of compounding- the eighth wonder of the world. Compounding is the process in which an asset’s earnings are reinvested to generate additional earnings over time. This return can be in the form of interest, dividend or capital gains. Compounding can be explained as interest on interest- the effect of which is to magnify returns to interest over time, this is also known as the “miracle of compounding”. This can very well be understood by the example of a snowball.

Have you thought what happens when you push a small snowball down a hill? When you push it down a hill, it continuously picks up more snow. By the time it reaches the bottom of the hill it is a giant snow boulder. While falling downhill it gets bigger with every revolution. The same happens with money, if you invest INR 100 for 2 years at 10% compound interest p.a., at the end of 1st year you have INR 110. Now, for the second year, the whole INR 110 is reinvested. So you get interest in this INR 110. Therefore, you get INR 121 at the end of the second year.

It is not a secret anymore that you can grow the money you save by investing it to earn a return. You can make your money grow faster if you reinvest the returns along with the principle amount. Various investments like savings accounts, fixed deposits, recurring deposits and bonds pay interest. Such investments provide you with clarity as exactly how much money you’re going to earn. Here, you still benefit from compounding by reinvesting your earnings on other investments, like stocks, mutual funds and exchange-traded funds.
Additionally, Rule 72 is a highly used method for understanding the application of the power of compounding. It is a technique to identify at what period would a particular sum of money double it at a given rate of interest. It requires you to divide the number 72 by the rate of interest. For example- if you invest a sum of money in a fixed deposit at an interest rate of 8% p.a. it would take 9 years for you to double the amount (72/8).

June 29, 2020

What is Systematic Investment Plan (SIP) ?

A mutual fund is one of the most popular modes of investment opt by investors desirous of making good returns on the same. There are generally only 2 ways to invest in a mutual funds scheme- Lump sum investment and Systematic Investment Plan.

Lump-sum investment refers to the investment of a good sum of money once into the scheme. It is suitable for times when you have a free load of cash in hand with you. However, the availability of a comparatively huge sum of money is not very common and this is the reason why many potential investors were unable to make investments.

Systematic Investment Plan (SIP) was brought as a mean of making a systematic and regular investment. This requires the investors to invest a fixed amount of funds at stated intervals, regularly. This has dealt with the inability of huge sums and allows the common man a chance to invest.

The return from the mutual funds depends on the market value of the securities present in the portfolio represented by the Net Asset Value (NAV) of the mutual fund scheme. Hence, the NAV keeps fluctuating on a daily basis, which is more prominent under equity mutual funds.

June 10, 2020

How Do Mutual Funds Work?

Mutual funds are one of the most popular financial instruments in town. Mutual fund is a collection of funds pooled in by investors and managed by a portfolio manager. Such funds are invested into various schemes in accordance to the earlier set objectives.

While the above information is generally available on all the online sites, the actual working of such funds isn’t told with much clarity and we ought to clear all your doubts on the actual working of mutual funds. So, let’s start.

As mentioned earlier mutual funds are a pool of resources instead of being a single resource which means there are multiple investors who have put money in a fund. Each person who has invested their money into the fund gain ownership over a part of the fund, known as a unit. We can also say that the entire fund is subdivided into multiple parts known as units. So, when a person wants to invest in a fund he has to buy these units.

Such mutual funds are of many types like equity funds, debt funds, hybrid funds, income funds, growth funds, index funds etc. Each fund has its own objectives, risk & reward. Different investment bankers offer different schemes. You may select the one which favors your objectives the most.

When you select the scheme you want to invest into, you have to buy the units. Once you buy the units, the investment bankers allocate the money to that fund. Generally, under the umbrella of a mutual fund there are many companies under it. They are known as sub-holdings.

Let’s understand this more clearly with an example of an equity mutual fund. Normally such mutual funds allocate around 70% of the total corpus in equity, 18% in debt and 12% in other securities. Within such umbrella of securities, there are a large number of companies.

The investment of money into a various types of securities a dividend supported by fixed returns. Also, within such types of securities, example- equity, there are a lot of companies existing in various sectors such as banking, refineries, housing finance and construction, etc. This helps the corpus through the benefit of diversification so that if any of these sectors under performs there is a low impact on the overall value of investment.

June 5, 2020

What are Mutual Funds?

Mutual fund is an investment fund where multiple investors pool their money to purchase securities. Such funds are managed by a highly trained professional commonly known as a fund manager or portfolio manager. This individual invests this corpus of funds into different securities such as stocks, debentures, bonds, gold, etc. as per the objective of the fund and with the aim of reaping profits out of such investment.

Let’s understand this more clearly with an example of a mutual fund known as Hybrid Equity Fund. Normally, all invest such mutual funds around 70% of the total corpus in equity, 18% in debt and 12% in other securities. Within such umbrella of securities, there are a large number of companies.