Churning is an unethical and illegal practice in which a broker or financial advisor executes an excessive number of trades in a client's account primarily to generate commission income, without regard to the client's investment objectives or best interests. Churning results in unnecessary transaction costs, tax liabilities, and potentially unsuitable investment decisions that erode the client's returns over time. In India, SEBI prohibits churning under its regulations on investment advisers and stockbrokers, requiring that all recommendations be in the client's best interest. Red flags for churning include unusually high portfolio turnover relative to the client's stated investment horizon, frequent switches between mutual fund schemes, and brokerage costs that are disproportionate to portfolio returns. Investors suspecting churning can file complaints with SEBI or approach the BSE/NSE investor grievance redressal mechanism.
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