What is a fund's turnover ratio and why should I care?

Turnover ratio measures how much of a fund's holdings it buys and sells in a year — and high turnover quietly costs you money. A 100% turnover roughly means the fund replaced its entire portfolio once over twelve months. Frequent trading generates transaction costs the fund absorbs and, more importantly in a taxable account, realizes capital gains that get distributed to you and taxed, even if you didn't sell. Index funds have very low turnover (often single digits) because they only trade when the index changes, which is part of why they're cheap and tax-efficient. Actively managed funds often turn over 50%–100% or more, adding hidden cost and tax drag. When comparing funds for a taxable account, low turnover is a quiet advantage alongside a low expense ratio. You'll find the turnover figure in the fund's prospectus or fact sheet.