I received an e-mail the other day from a 14-year-old young investor who was loo king at mutual fund

information and came across a section labeled "Turnover Rate " and he was unsure what it meant. Every mutual fund has a portfolio turnover rate. The turnover rate is basically the percentage of the portfolio that is bought and sold to exchange for other st ocks. For example, if there are 20 stocks in the mutual fund and 5 of those stoc ks are sold one year so that the mutual fund will be able to buy 5 more stocks, then the turnover rate would be 25% (5 / 20 = .25). The turnover rate may seem like just another number for you to look at and confu se you but it does have major significance. As a young investor, you may not be too concerned about taxes but your parents might be. This number helps you deter mine how much you will have to pay in taxes for that mutual fund. For example, i f the mutual fund has a low turnover rate, you will probably pay less in taxes. If it has a high turnover rate, you will probably pay more in taxes. For your co mparison, the average turnover rate is about 50%. Some types of mutual funds just naturally have low turnover rates. These include retirement funds, growth and income funds, and equity income funds. Likewise, s ome mutual funds have high turnover rates. These are usually mutual funds that a re riskier and require more concentration such as technology funds. We hope this has cleared up a couple questions. We apologize if we lost you anyw here in there but if we didn't, you might be able to put this knowledge to use s ometime, because the turnover rate is a very important number to consider. ========================================= Portfolio turnover rate For an investment company, an annualized rate found by dividing the lesser of purchases and sales by the average of portfolio assets. ================================================================================ = A portfolio turnover is an assessment of how often assets within a given portfol io are bought and sold. Measuring the rate of this type of turnover can often yi eld valuable clues regarding the amount of expense an investor is incurring with they trading activity, and compare that expense to the return generated by thos e trades. Calculating a portfolio turnover is usually done for a twelve-month pe riod, although the basic process can also be used to assess the turnover rate fo r a quarter or semi-annual time frame. In order to determine portfolio turnover, the value of the securities that are b ought or sold during the period under consideration is calculated. That figure i s then divided by the total net asset value of the portfolio during that same pe riod of time. If the total net asset value for the current period is higher than the previous period, then the turnover is considered minimal. Should the value be lower than the previous period, that is an indication that expenses related t o the portfolio were higher, did not yield sufficient return to offset those exp enses and generated a higher turnover rate. For example, if an investor purchases three investments during the course of the year while selling one security, the sale would be subtracted from the amount o f the purchase, allowing for any trading fees or costs paid to brokers or dealer s. This figure is divided by the current value of the portfolio. Should the thre e acquired investments fail to contribute to the value of the portfolio as effec tively as the one security that was sold, this will show as a loss, or a decreas e to the overall value of the portfolio and indicate an unacceptable turnover ra

te. In the event that the purchases did completely offset the sale, and those se curities performed significantly better than the security that was sold, the por tfolio turnover will be low and thus very favorable for the investor. Investors can also undermine the value of the portfolio by making frequent trade s that fail to yield a reasonable return, and help offset various fees and costs . For this reason, it is important to project the outcome of any transaction, in terms of its ability to earn a return. Just as in employee situations, a high t urnover indicates the presence of issues that need to be addressed, a high portf olio turnover is a sign that the investor needs to look closely at how selects s ecurities for purchase or sale, and adjust that process so the turnover rate is more beneficial. ======================================= Portfolio Turnover Rates: the one thing you won t know about your funds? An article exploring where Portfolio Turnover rates are excessive, hidden costs can be charged on funds. Do you know what the PTR figure is on your funds? No? You are not alone .A recent survey shows that only 8% of specialist investment advisers know what a PTR is. I don t know what the figure is amongst private investors but I have only ever met a handful of people who knew about the PTR. Yet it is a very important figure. The PTR is the portfolio turnover rate of a fund. It is a figure, which expresse s the amount of turnover in the fund in a year, which means how often they buy a nd sell the holdings in the fund. The year is normally the accounting year of th e fund. It is important for two reasons: Firstly it will allow you to understand the trading style of the fund manager an d possibly check their actions against their stated investment philosophy and pr actice. For example if a fund manager is meant to be pursuing a steady, long ter m buy and hold strategy but they have high PTRs this will suggest they are pursu ing a more active strategy than the one they purport to pursue. Secondly it will allow you to asses the hidden costs of a fund. This is because the costs of the transactions relating to portfolio trades (i.e. the turnover) a re not part of the transparent costs. This gives rise to a strange anomaly: the costs of a fund are expressed as a TER (Total Expense Ratio), which may be for example 1.8% p.a. The TER tells you how much the fund is deducting in costs, which might help you judge whether it is a high cost or low cost fund. However because the transaction costs are separate, not included in the TER, they do not affect or contribute to this figure. This means the TER, which is meant to be the Total is not the total. High PTRs will mean high hidden costs and in particular if you find a fund that has a high TER (say anything more than about 1.5%) and a high PTR you could be l ooking at shockingly high costs. Investors will be well served by knowing the facts surrounding PTRs but they are very hard to find and even when found might be difficult to translate into hidd en costs. The PTR will be expressed as a percentage, let s say 100% as an example. This will

mean that the fund has turned over once in a year, or put another way the whole p ortfolio will have moved in its entirety across the year. Put yet another way a PTR of 100% means that the average holding within the fund is one year. In chang ing the holdings the fund manager will incur costs (remember costs that are not revealed by the TER) and the more they churn and burn the more they incur extra costs. Now this may be justified: that is not our point. They may be justified because the fund manager may get better results by chopping and changing, although this is far from proven across the board, however if investors don t know the details t hey cant judge the position. Our point is that investors are better served by be ing better informed and the lack of knowledge and published information across f unds of all types is damaging for investors who wish to make well-informed decis ions. We aim to help with this because we have access to a service that investors can benefit from: we can help investors get PTR information on a range of funds. We believe this service is almost unique in the UK. ============= How to Calculate Portfolio Turnover Thoroughly research every investment before sinking money in it. This is especia lly true for mutual funds and other stock portfolios that are professionally man aged. In addition to performance and return, one important metric to consider is portfolio turnover. The portfolio turnover rate is the percentage of a fund's h oldings that have changed hands within one year. It is used as a gauge for how l ong fund managers hold stocks. In addition to finding this metric in the prospec tus, you can also calculate it yourself.

Instructions 1 Calculate the turnover rate. Divide the fund's total sales or purchases by the a verage value of assets during the year. 2 Sum the total purchases for the entire year for the portfolio. Let's say your fu nd purchased $100,000 in new securities (assets) for the year. 3 Determine the average assets (securities or investments) in the fund on a monthl y basis. You can find the monthly average by adding up the average balance of th e last 12 months and dividing by 12. Let's say the average assets in the fund on a monthly basis over the last twelve months are $500,000. 4 Divide the purchase amount by the average assets for the turnover ratio. The tur nover ratio is $100,000 / $500,000 or .2. This equals 20 percent (.2 x 100) and indicates that the fund manager holds the stock an average of five years.

Tips & Warnings A portfolio with a turnover rate of 25 percent indicates that the fund manager h

olds the stock an overage of four years. In general, fund managers with a buy-an d-hold strategy have a lower turnover rate and fund managers who trade based on short-term events have a higher turnover ratio.

Tips & Warnings A portfolio with a turnover rate of 25 percent indicates that the fund manager h olds the stock an overage of four years. In general, fund managers with a buy-an d-hold strategy have a lower turnover rate and fund managers who trade based on short-term events have a higher turnover ratio.

Read more: How to Calculate Portfolio Turnover eHow.com http://www.ehow.com/ho w_5885771_calculate-portfolio-turnover.html#ixzz1ST8xNzie

======================================= How to Calculate Portfolio Turnover Thoroughly research every investment before sinking money in it. This is especia lly true for mutual funds and other stock portfolios that are professionally man aged. In addition to performance and return, one important metric to consider is portfolio turnover. The portfolio turnover rate is the percentage of a fund's h oldings that have changed hands within one year. It is used as a gauge for how l ong fund managers hold stocks. In addition to finding this metric in the prospec tus, you can also calculate it yourself.

1 Calculate the turnover rate. Divide the fund's total sales or purchases by the a verage value of assets during the year. 2 Sum the total purchases for the entire year for the portfolio. Let's say your fu nd purchased $100,000 in new securities (assets) for the year. 3 Determine the average assets (securities or investments) in the fund on a monthl y basis. You can find the monthly average by adding up the average balance of th e last 12 months and dividing by 12. Let's say the average assets in the fund on a monthly basis over the last twelve months are $500,000. 4 Divide the purchase amount by the average assets for the turnover ratio. The tur nover ratio is $100,000 / $500,000 or .2. This equals 20 percent (.2 x 100) and indicates that the fund manager holds the stock an average of five years.

Tips & Warnings A portfolio with a turnover rate of 25 percent indicates that the fund manager h olds the stock an overage of four years. In general, fund managers with a buy-an d-hold strategy have a lower turnover rate and fund managers who trade based on short-term events have a higher turnover ratio.

========================================================= Portfolio Turnover Ratio

There are many metrics to help investors determine which mutual fund to invest i n. One of the most common is the portfolio turnover ratio. The portfolio turnove r ratio will let an investor know how frequently a fund manager buys and sells a ssets of the fund. This is important because the more the fund buys and sells th e more expensive the fund is to own. The higher the expenses, the lower the over all return. Portfolio Turnover Ratio A mutual fund's turnover ratio is the percentage of a fund's holdings that have changed in a given year. It is calculated by taking a fund's sales or purchases, whichever is lower, and dividing it by the average monthly value of the fund's assets. Calculation To calculate the turnover ratio, sum the total purchases or sales in a given yea r. Let's use $100,000 as the total purchase or sales for the year. Then, take th e average monthly balance for the past 12 months, add them together and divide b y 12. For this example we will use $400,000 as the average monthly balance. Divi de the total purchases by the average monthly balance (100,000/400,000 = .25). T he portfolio turnover ratio is usually give in percent form. To get the percenta ge multiply the answer by 100 (.25 X 100 = 25 percent). In this example the fund 's turnover ratio is 25 percent. This means that the fund manager holds on to a stock for four years on average. Considerations As simple as the calculation may seem there are other factors to consider. Long term buy-and-hold managers will almost always have a lower turnover ratio than m anagers that trade on short-term factors. Also, a bond fund or money market fund 's turnover ratio will be dramatically different than a stock fund. Portfolio tu rnover ratio should not be used to make the final decision as to whether you buy a fund or not. A fund manager may keep a steady pace of buying and selling over a period of years, but because a fund's average monthly assets can fluctuate de pending on market conditions it may appear as though the fund manager has a very high or very low turnover ratio. If the fund's assets increase substantially, t he turnover ratio may seem lower. Conversely, if the fund's assets are reduced t he turnover ratio can dramatically increase. Comparison Use the portfolio turnover ratio in conjunction with other ratios to help make y ou decide which mutual fund to buy or sell. Never rely on any one metric. If you are comparing funds, make sure they are similar. Read the prospectus to determi ne the fund's objectives and fees to help your comparison. A fund with an object ive of long-term growth will be very different than one with an objective of pre serving principal. ============================== Portfolio Turnover Rate The rate at which the fund's portfolio securities are changed each year. If a fu nd's assets total $100 million and the fund bought and sold $100 million worth o f securities that year, its portfolio turnover rate would be 100%. and selling securities, including commissions, purchase and redemption fees, exc

hange fees, and other miscellaneous costs. In a mutual fund prospectus, these ex penses are listed separately from the fund's expense ratio. For instance, a portfolio turnover rate of 36% over a six-month period could be converted to an annualized rate of 72%. annuitant A person receiving benefits un der an annuity contract. See "annuity.