Tipping point: Should you know portfolio turnover ratio before investing?

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The portfolio turnover ratio indicates how much buying and selling a fund manager does. A turnover of 100 per cent means the fund manager has changed his entire portfolio once in a year. A turnover of 50 per cent means he has changed half his portfolio in a year, and so on. 

Many investors think a high turnover ratio means the fund manager is very proactive in managing it. This is a mistaken belief. Too much churn raises costs. If one is looking for a stable fund, go with one where the turnover ratio is below the median level (see table). A lower turnover ratio means a buy-and-hold kind of fund manager who is sure of his picks and has the patience to wait till value is realised.



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