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, expressed as a percentage. A turnover of 100% means the fund effectively replaced its entire portfolio during the year; a low-turnover index fund might be in single digits.

High turnover matters because it drives up costs — every trade incurs transaction costs and can widen the gap between the fund's gross and net returns. In a taxable account it does more damage: frequent selling realises more capital gains, which get distributed to shareholders and taxed. Low-turnover index funds are cheap and tax-efficient partly because they simply trade so little, letting their holdings compound undisturbed.

How much a fund trades in a year
Active fundhigh trading cost & tax100%Index fundcheap, tax-efficient4%Turnover is how much a fund trades in a year — high turnover quietly adds cost and tax drag.

An active fund can replace its whole portfolio yearly, racking up trading costs and taxable gains; a low-turnover index fund barely trades. Turnover is a quiet predictor of real 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.

Learn it by doing

That's Turnover in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 6, Index Funds, ETFs & Mutual Funds).

Try the free lesson →

Why it matters to you

Turnover matters because it's a quiet, often-overlooked predictor of a fund's real cost and tax drag. Two funds with the same headline fee can deliver very different net results if one trades constantly and the other barely at all — especially in a taxable account, where high turnover generates taxable distributions. Checking turnover alongside the expense ratio gives a fuller picture of what a fund will actually cost you.

⚠ Overlooking turnover's tax cost

The expense ratio isn't the only cost. A high-turnover fund racks up trading costs and, in a taxable account, generates capital-gains distributions that leave you with a tax bill — even in a year the fund didn't rise much. Two funds with the same fee can differ sharply after tax. Check turnover, especially for taxable holdings.

Frequently asked questions

What is fund turnover?

Turnover is the percentage of a fund's portfolio that's bought and sold over a year. A 100% turnover means the fund replaced its holdings roughly once during the year; a low-turnover index fund might trade only a few percent. Higher turnover generally means higher costs.

Why does high turnover matter?

Because it raises a fund's real cost. Frequent trading incurs transaction costs and, in a taxable account, realises capital gains that are distributed and taxed. High turnover can therefore erode net returns beyond what the expense ratio suggests, especially for funds held in taxable accounts.

Do index funds have low turnover?

Generally yes. Because index funds only trade to stay aligned with their benchmark, their turnover is usually very low — often single digits. That low turnover is part of why they're cheap and tax-efficient, letting their holdings compound with minimal trading costs and few taxable distributions.

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.
← Back to the full glossary