Out of the 266 equity mutual funds, 55 funds have a portfolio turnover ratio exceeding 100% in the last three months (June, July, and August 2024). This high level of turnover ratio means that the fund manager is continuously changing the stock holdings of a fund. It increases the cost of managing the fund and thereby impacts the returns.
Shriram Flexi Cap Fund had a portfolio turnover ratio of 800% in the last three months topping the list of high turnover ratio funds. Quant Large Cap Fund had more than 600% turnover ratio in the last three months and Union Midcap Fund had over 200% ratio in the same period. On the contrary, HDFC Large and Mid Cap Fund had a portfolio turnover of just 6% – 7% in June, July, and August 2024.
Why such a high turnover ratio?
A high ratio means that the fund manager is trying to capitalize on every opportunity that comes into the market and trying to generate market-based returns. While active participation by a fund manager does not guarantee high returns. Out of 55 funds, 11 equity schemes have generated negative returns of up to 2% in August 2024.
Can you rely only on the turnover ratio?
Making a decision solely on the basis of the portfolio turnover ratio is not a good idea. You need to check the performance of a fund across market cycles and its alpha-generating potential. Also, consider the net inflows coming into the fund and if the fund manager is investing the money into stocks, then it might also increase the turnover ratio. Through diversification across market caps, AMCs, and categories, you can reduce the performance risk related to one fund manager and one type of fund.
Next time when you invest in mutual funds, focus on all-round analysis. Open the Demat account with SMC Global Securities and invest wisely.
Reference:
https://economictimes.indiatimes.com/mf/analysis/55-equity-mutual-funds-have-a-portfolio-turnover-ratio-of-over-100-should-you-be-worried/articleshow/113724269.cms?from=mdr
