What is turnover rate

Turnover rate in finance refers to the rate at which assets or investments are bought and sold within a specific period of time. It is a measure of the trading activity within a portfolio or fund, and is often used to assess the liquidity and efficiency of the investment strategy. In the context of a mutual fund or investment portfolio, turnover rate is calculated by dividing the total value of securities bought or sold within a given period by the average net asset value of the fund during that period. This calculation provides insight into how actively the fund manager is trading the portfolio, and can help investors understand the potential impact of transaction costs and tax implications on their returns. A high turnover rate may indicate that the fund manager is frequently making changes to the portfolio, which can lead to higher transaction costs and potential tax consequences for investors. On the other hand, a low turnover rate suggests a more passive approach to managing the portfolio, which may result in lower trading costs but could also mean less responsiveness to market changes. Investors should consider turnover rate as part of their overall investment strategy, taking into account their risk tolerance, investment goals, and the potential impact of trading activity on their returns. It is important to assess turnover rate in conjunction with other performance metrics and investment objectives to make informed decisions about investment choices.