Transaction Cost: For stock or mutual fund sold (in demat), your broker and demat account service provider will charge you the brokerage and other statutory charges, respectively. Although these charges are very low, but it can still add up to a big amount, if done very frequently.
“Simply put, high churning of a portfolio means buying and selling securities very frequently. High volume of transactions leads to high taxes and transaction costs, such as brokerage, securities transaction tax (STT), and other charges, thereby reducing the returns from your portfolio. Portfolio churn, also called as portfolio turnover, is the ratio of a minimum of securities bought or sold over the average assets of the portfolio,” says Ajay Modi, vice-president, Research Piper Serica Advisors and Smallcase manager.