NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Mutual Fund Scheme Performance
A fund's portfolio turnover ratio is high. What is the most direct implication for investors?
A high portfolio turnover ratio means the fund trades frequently, which can raise transaction costs such as brokerage and impact cost and thereby reduce investor returns. It does not guarantee better performance or exempt the scheme from expense limits.
- ALower brokerage and transaction costs for the scheme
- BPotentially higher transaction costs, which can reduce returnsCorrect
- CGuaranteed higher returns
- DThe scheme is exempt from expense ratio limits
Explanation
Turnover shows how actively securities are bought and sold. Higher trading generates more brokerage and impact costs, which can weigh on returns. It does not ensure better performance, and expense limits still apply.
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