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MF Corner: Impact of stock churn on returns explained

Updated : June 01, 2021 18:17:16 IST

Have you wondered what is stock churn or portfolio turnover ratio and whether it affects a mutual fund scheme’s returns? Kalpesh Ashar, a Certified Financial Planner at Full Circle Financial Planners explains the impact on returns.

“Stock churn by definition if you see, it is nothing but frequent buying and selling of stocks in a mutual fund scheme and that prerogative, that responsibility, that onus is the fund manager. So, with what conviction or with what conditions of the market does a fund manager decide to make changes to his portfolio either on a frequent basis or on a prolonged basis is completely his call,” he told CNBC-TV18.

Also, Prableen Bajpai of Finfix Research decodes how changes to Nifty and Sensex affect the index fund.

“Primarily an index fund is supposed to just mirror the underlying index. Index by the very virtue, how they are constructed, they also undergo rebalancing where stocks are added and deleted from them and the index funds have to broadly just replicate the same structure in the fund. So all the decisions, whether it is what to buy, what to delete, what to sell, and when to do so for an index fund which is a passive strategy is governed by what the underlying index is doing,” she said.

Watch the video for more.
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