Turnover rate in an investment fund refers to the percentage of a portfolio’s holdings that are replaced in a given year. While index funds are generally perceived as low-turnover investments due to their passive management, different types of index funds and even actively-managed ones vary significantly in turnover, which can have a substantial impact on both performance and an investor’s tax situation. Typical Turnover Rates in Index Funds 1. S&P 500 Index Funds S&P 500 index funds, which track the performance of the 500 largest publicly traded U.S. companies, are known for having relatively low turnover rates. On average, turnover for these funds tends to range between 2% and 5% annually. This number can increase in volatile markets due to small investor herding impacts. Small investor herding impacts occur when investors sell in fear during down-markets or buy during rallies because they’re worried about missing out. Turnover can also increase when companies are removed from the index. The frequency of these removals can vary depending on the health of the economy and the companies within the index. This low turnover is due to the passive