Turnover ratio

A mutual fund's turnover ratio measures the percentage of holdings that the fund sells, or turns over, in a year.

For example, if a stock fund manager has a portfolio of 100 stocks at the beginning of the year, sells 75 of them and buys 75 different stocks, the turnover rate of the fund is 75%.

Some investors look for funds with lower turnover ratios, since limited trading may help to minimize capital gains taxes and trading costs. However, a high turnover ratio can also produce strong returns, which can offset the added costs and produce a net gain.