Clearly, the detrimental effects of market impact costs on portfolio performance are exacerbated by such high rates of turnover. In fact, if a mutual fund never made any purchases or sales in its portfolio, it would not have any market impact costs at all. It is partially the recognition of this fact that has spawned the interest in index funds. An index funds sells stocks only to rebalance its portfolio to match the index it is tracking or to meet net redemptions. It purchases stocks only to rebalance or to accommodate cash inflows. As a.
