Investing term

What is Turnover?

How much of a fund's portfolio is bought and sold per year.

Turnover is how much of a fund's portfolio is bought and sold over a year. High turnover means lots of trading, which drives up costs and, in a taxable account, realizes more taxable gains — both a drag on net returns. Low-turnover index funds are cheap partly because they trade so little. Turnover is a quiet but real predictor of cost.

For example

A fund with 100% turnover effectively replaces its entire portfolio each year, racking up trading costs and tax bills a buy-and-hold index fund avoids.

Turnover is taught hands-on in Stage 6 — Index Funds, ETFs & Mutual Funds.

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Related terms

Active fundA fund whose manager picks stocks in the hope of beating a benchmark.BenchmarkThe reference index a fund compares itself to — e.g. the S&P 500, MSCI World, or Bloomberg Aggregate.Creation/redemptionThe mechanism that keeps ETF prices close to NAV. Authorized participants swap baskets of underlying stocks for ETF shares (or vice versa).DistributionThe income a fund pays out to its shareholders — dividends from stocks held, plus realized capital gains.
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