The Portfolio Turnover Ratio Signal Strength & Criticisms
Limitations of Portfolio Turnover Ratio Calculations
We gave different weights to each parameter-40% to mid-cap and small-cap exposure, 30% to
portfolio turnover ratio, 20% to cash holding and 10% to volatility in returns.
This is evident from the
portfolio turnover ratio of existing close- ended equity funds, which are mostly tax- saving funds.
In particular, the characteristics that will be examined are: fund size, age, expense ratio, portfolio turnover ratio, initial service charge (front-end load charge), fund investment objective, fund riskiness and private/government fund status.
where [[alpha].sub.j] is the risk-adjusted return for fund j estimated from Equation 1; EXPENSE [RATIO.sub.j] is the jth fund's management expenses ratio, which is the portion of the fund's average net asset paid for management fees, trustee fees, audit fee and other administrative fee involved in operating the fund; [PORTFOLIO TURNOVER.sub.j] is the portfolio turnover ratio for [FUND TYPE.sub.j], measured by the average total acquisition and disposal of securities for the year as a percentage of the average net asset value of the fund.
This is evident from the
portfolio turnover ratio of existing close-ended equity funds, which are mostly tax-saving funds.
A low portfolio turnover ratio means the fund manager is holding stocks for longer periods.
HDFC Mutual Fund plans such as HDFC Top 200 and HDFC Equity have the lowest portfolio turnover ratios. The average portfolio turnover ratio of HDFC Top 200 in 2011- 12 was 19.7 per cent and that of HDFC Equity was 33 per cent.
A relatively higher
portfolio turnover ratio (145-150 per cent):
20 per cent is the portfolio turnover ratio of HDFC Top 200, one of the lowest in the large- & mid-cap equity diversified category.
HDFC Mutual Fund schemes such as HDFC Top 200 and HDFC Equity have the lowest portfolio turnover ratios in the industry.
