Contents
Portfolio Turnover Ratio (PTR) measures the percentage of a mutual fund's portfolio that has been replaced (bought and sold) within a given year. It is an AMFI-mandated disclosure that appears in every mutual fund factsheet and in the Scheme Information Document (SID).
Formula
PTR = MIN(Purchases, Sales) / Average AUM × 100
Using the minimum of purchases or sales prevents double-counting: if a fund buys ₹100 crore of new stocks and sells ₹80 crore, turnover is ₹80 crore (the smaller of the two), not ₹180 crore. Average AUM is typically the mean of the beginning and ending month AUM for each month, then averaged over the year.
Example: A fund with average AUM ₹10,000 crore, purchases ₹6,000 crore, sales ₹5,500 crore → PTR = 5,500/10,000 = 55%. A PTR of 100% means the entire portfolio was replaced once over the year; 200% means it was replaced twice on average.
What High vs Low Turnover Signals
| PTR Range | Fund Style Signal | Cost Implication |
|---|---|---|
| < 20% | Low activity; buy-and-hold; index-like | Minimal transaction cost drag |
| 20 – 60% | Moderate churn; some opportunistic trading | Moderate brokerage + STT drag |
| 60 – 120% | Tactical active management; sector rotation | Meaningful cost drag; needs commensurate alpha |
| > 120% | High-frequency repositioning; momentum | High cost drag; STT + brokerage + impact cost compounding |
Cost Impact of Turnover
Every purchase and sale incurs transaction costs that reduce net returns but are NOT captured in the TER (the TER covers management fees, AMC costs, registrar fees, etc. — but NOT Securities Transaction Tax, brokerage, or market impact). High PTR funds have a hidden cost in addition to their TER. SEBI's TER caps do not constrain transaction cost drag, which is why PTR is an independent quality signal.
Approximate cost per round-trip (buy + sell) for Indian equity: STT (0.1% on delivery sell) + SEBI levy (0.0001%) + brokerage (institutional AMC typically 0.01–0.05%) + impact cost (0.1–0.5% for large trades in mid/small cap) = roughly 0.2–0.6% per full round-trip. A fund with PTR = 150% incurs 0.3–0.9% additional drag annually beyond its TER.
Worked Example (Indian Context)
Two mid-cap funds, same category, same 3Y annualised return (gross) of 19%:
- Fund A: TER = 0.9%, PTR = 30% → total cost ≈ 1.0%; net return ≈ 18.0%
- Fund B: TER = 0.8%, PTR = 140% → total cost ≈ 1.5–1.9% (TER + transaction drag); net return ≈ 17.1–17.5%
Fund B's lower headline TER is offset by its high turnover cost. PTR is a useful cross-check whenever two funds show similar TERs but different net performance relative to gross attribution.
PTR for Index Funds and ETFs
Index funds and ETFs tracking Nifty 50 or Nifty 500 should have PTR in the 5–20% range, reflecting only index reconstitution churn (Nifty 50 reconstitutes 1–3 stocks per semi-annual review; Nifty 500 more frequently). A Nifty 50 index fund with PTR > 50% warrants scrutiny — it suggests the manager is trading around the index rather than purely replicating it.
Caveats
PTR is disclosed at a lag — typically in the monthly factsheet or annual SID update. It reflects the full year; a fund that repositioned heavily in one quarter but was quiet otherwise will show a PTR that averages the burst. PTR also does not distinguish between churn forced by large redemptions (not the manager's choice) and voluntary tactical trades.
Related terms: TER, Alpha, Tracking Error, Information Ratio, AUM.
Primary source: AMFI Best Practices Circular — portfolio turnover disclosure requirement in factsheets: amfiindia.com — AMFI Monthly Review. SEBI LODR Regulation 60 (SID disclosure requirements) and SEBI MF Regulation 1996 Third Schedule.
Past performance is not indicative of future returns. Mutual fund investments are subject to market risks. Read all scheme-related documents carefully. ARN-314872. APMI APRN-01658. Content is informational and not investment advice.