Turn Over Ratios for Mutual Funds

High fund turnover ratios may cut into your fund's return.

Duncan Smith/Photodisc/Getty Images

Turnover ratios of mutual funds tell you what percentage of the portfolio assets are traded during the previous year. High turnover rates usually mean higher transaction fees for the fund, translating into higher management costs and lower returns. Such portfolio transactions can have tax consequences for non-tax-deferred accounts, even if you hold the investment for the entire year. Mutual fund prospectuses are required to provide the turnover ratio, but you can calculate it yourself with data provided in fund annual reports.

Step 1

Find the total assets held at the beginning and the end of the most recent year for the fund, found in the prospectus or annual report and labeled "Net assets, end of period." For example, the 2011 report will indicate the value of assets at the end of 2011 assets. For the beginning of 2011, use the end of 2010 net assets.

Step 2

Average the figures for the beginning and end of the year to get the average net assets held during the year. Example: Average assets held in 2011 = (End 2011 assets – End of 2010 assets) / 2.

Step 3

Find the total purchases or sales during the year. Locate these in the Annual Report for the year in question in a section usually titled "Purchases and Sales of Investments" or "Financial Highlights."

Step 4

Divide the larger value of purchases or sales by the average net assets held during the period. The result is the turnover ratio. Multiply by 100 to get a percentage. Example: $12.5 million of sales / $125 million average net assets held during the year = .10 or 10 percent. Some funds have a turnover rate of over 100 percent.