If your fund's turnover ratio is too high, watch out

Go with fund managers who are able to produce good returns with a relatively low turnover

The turnover ratio tells you how much a fund manager churns his portfolio. A ratio of 100 per cent means the manager holds stocks within his portfolio for one year on an average. Remember, there is a cost to trading. If the manager’s hectic buying and selling does not work, the fund would have incurred a cost without commensurate gain. 

Prefer funds with relatively lower turnover ratio and a sound record. It indicates the manager is convinced about the stocks he has bought and is willing to wait till his investment ideas work out. 

A ratio of around 30 per cent would be considered good, as it indicates the fund manager holds stocks for three years on an average. Alternatively, opt for funds with a turnover ratio lower than the category median.  

Note: Table shows five funds from each category with the lowest turnover ratio. Data are for April or the earliest period for which data was available, Source: Ace MF