Fund Turnover Ratio.

In plain English

The turnover ratio measures how often a fund replaces the investments it holds over the course of a year. A 100% turnover ratio roughly means the fund traded an amount equal to its entire portfolio during the year, while a 10% ratio means it barely traded at all. High turnover usually means more trading costs inside the fund and more taxable gains passed on to you if you hold the fund in a regular taxable account. Index funds tend to have low turnover, while actively managed funds often have much higher turnover.

01Why it matters

High turnover can hand you a tax bill in a taxable account even in a year you never sold a single share, and the hidden trading costs eat into your returns.

02The math, step by step

An index fund reports a 4% turnover ratio, meaning it rarely trades. An active fund reports 90% turnover, meaning it bought and sold nearly its whole portfolio in a year. In a taxable account, that active fund is more likely to pass capital gains to you, raising your taxes for the year.

03What this is NOT

04Receipts

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