Page "Index fund" Paragraph 20

Turnover refers to the selling and buying of securities by the fund manager.

Selling securities in some jurisdictions may result in capital gains tax charges, which are sometimes passed on to fund investors.

Even in the absence of taxes, turnover has both explicit and implicit costs, which directly reduce returns on a dollar-for-dollar basis.

Because index funds are passive investments, the turnovers are lower than actively managed funds.

According to a study conducted by John Bogle over a sixteen-year period, investors get to keep only 47 % of the cumulative return of the average actively managed mutual fund, but they keep 87 % in a market index fund.

This means $ 10, 000 invested in the index fund grew to $ 90, 000 vs. $ 49, 000 in the average actively managed stock mutual fund.

That is a 40 % gain from the reduction of silent partners.