When we talk about the mutual fund investment in India, there are many numbers to keep an eye on. One indicator that usually goes overlooked is the Portfolio Turnover Ratio (PTR). But What is Portfolio Turnover Ratio? if you want to follow the best mutual fund portfolio strategy for 2025, then understanding this number can make a big impact in how you pick and manage your investments.
What is Portfolio Turnover Ratio?
Portfolio Turnover Ratio (PTR) measures how often the fund manager buys and sells your investments within a fund throughout a year. It is shared as a percentage.
- A turnover ratio of 100% means the entire portfolio of funds was substituted in a year.
- A lower turnover ratio means that the fund manager buys and sells your investments less often.
For example, if a mutual fund has ₹100 crore in assets and makes a value of ₹50 crore of trade in a year, then its Portfolio Turnover Ratio is 50%.
Why Should Investors Care?
Understanding the Portfolio Turnover Ratio helps you evaluate these following factors:
1. Investment Style
Higher turnover means the fund manager is actively trading to grab short-term opportunities. On the other hand, lower turnover shows a long-term investing approach.
2. Costs Involved
Frequent trading of funds usually leads to higher transaction costs and these hidden costs can lower your overall returns, which includes the taxes too.
3. Tax Impact
Higher turnover can mean more short-term capital gains tax for investors (Income Tax Capital Gains Guide). Whereas, funds with lower turnover may be more saving on taxes.
4. Risk Factor
Higher turnover funds may have a higher amount of risk due to its often changes in the portfolio and on the other hand, lower turnover funds usually match with a long-term wealth creation approach.
How to Use PTR When Choosing a Mutual Fund
When you get the understanding of how to choose the right mutual fund in India, keep Portfolio Turnover Ratio in mind along with other factors like the objective of the fund, expense ratio, and the past performance of the fund. Here’s how you can use PTR while choosing a mutual fund smartly:
- Compare similar types of mutual funds and look at the PTR for funds in the same section.
- Align it with your financial goal if you prefer steady returns, then a lower PTR may be a better option to choose.
- By understanding the strategy of the fund manager, because the high risk funds naturally have high PTR.
Ideal PTR for Indian Investors
There is no ideal Portfolio Turnover Ratio, but experts recommend that for long-term wealth creation, a lower turnover ratio, which is below 50% is usually more suitable for equity funds. Whereas, in case of debt funds, turnover ratio may be higher because of the nature of debt instruments (SEBI Mutual Fund Regulations).
Conclusion
The Portfolio Turnover Ratio may not catch attention but it quietly affects your returns on invested funds. Being an informed investor, make sure to keep an eye on it while planning your mutual fund investment in India.
If you are aiming for the best mutual fund portfolio strategy for 2025, then don’t forget to check this number along with other important things.