How to Measure Investment Turnover Ratio

An investment turnover ratio measures how actively a fund is managed. A high turnover ratio means the manager is buying and selling stocks on a regular basis, while a low turnover means the fund holds its investments for a longer period of time. Though a high investment turnover ratio might make you feel like your manager is more involved, it's not always the best investment strategy because of the cost of each trade. According to Morningstar, managers with higher turnover rates usually have more aggressive investing strategies.

Step 1

Divide the total sales by the investment fund's assets during a particular period. For example, if the mutual fund has \$1 million in stock sales during the quarter and \$5 million in assets, divide \$1 million by \$5 million to get 0.2.

Step 2

Multiply the result by the number of periods per year. In this example, since there are four quarters per year, multiply 0.2 by 4 to get 0.8.

Step 3

Substitute the result for "x" in the following ratio: "x to 1." In this example, substitute 8 for "x" to get an investment turnover ratio of 0.8 to 1. This means that over one year, each dollar of assets will get sold 0.8 times.

Photo Credits

• Zedcor Wholly Owned/PhotoObjects.net/Getty Images