![]() ![]() The continuous trading activity involves transaction costs.Hence, the fund manager keeps trading to maintain the ideal portfolio returns rate. On the other hand, when the market rallies, it encourages the fund manager to indulge in trading, which increases the PTR. During the volatile market, the fund manager will hold tight and keep the ratio low. The level of portfolio turnover ratio depends on the market conditions.Therefore, funds with dynamic asset allocation will relatively have a high expense ratio. Also, aggressive trading activity results in a high expense ratio. For active mutual funds, the fund manager follows an active investing strategy where he buys and sells securities to take advantage of the changing market situations.On the other hand, funds with high PTR show aggressive trading activity. As a result, there is a low portfolio turnover ratio due to low trading activity. For passive mutual funds, the fund manager merely matches the fund portfolio composition with the benchmark index.Sometimes, the lower ratio also could be due to the fund category. Therefore, the fund will have a low expense ratio owing to the low transaction costs. Furthermore, he holds these securities for a fixed time horizon. Also, a low PTR indicates a buy-and-hold strategy where the fund manager is confident about the security purchases. The PTR provides clues about the investment strategy that the fund manager uses to generate returns.The portfolio turnover ratio is one of the important metrics for mutual fund investment Interpretation of Portfolio Turnover Ratio in Mutual Fund Investment Therefore, the portfolio turnover ratio of the fund is 25% which indicates that one-fourth of the portfolio securities were traded. Suppose for an ABC equity mutual fund the fund manager purchases stock worth Rs. Portfolio Turnover Ratio = Minimum securities bought or sold / Average AUM of the fund. Also, the time horizon can be monthly or yearly. The securities and also AUM should be of the same period. To calculate this ratio, you can consider the minimum number of securities either purchased or sold (whichever is lesser) and divide it by average assets under management (AUM). It is a very simple method to determine the portfolio turnover ratio. #TURNOVER RATE MUTUAL FUND HOW TO#How to Calculate Portfolio Turnover Ratio? Moreover, this ratio is available in the monthly fact sheet of the mutual fund scheme. You can also understand the functioning of a mutual fund by looking at the portfolio turnover ratio. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |