Pre-payment seems to have become the norm of the day -- cards to mobile SIMs, and now two brokerages, ICICI Securities and India Infoline Financial Limited, have launched life-time prepaid brokerage plans.
These plans allow customers to pay a lump sum and enjoy an upfront reduction in brokerage fees charged on all equity and derivative transactions.
So, while a regular I-Sec customer pays 0.55 per cent brokerage plus service tax for each time shares are bought and sold, with this plan he will have to pay 0.35 per cent only.
The concessions will differ depending on the plan he opts for -- higher the prepaid amount, more the concession.
ON OFFER
I-Sec is offering four prepaid plans, ranging from Rs 25,000 to Rs 100,000 to its ICICIdirect customers. IIFL customers, on the other hand, must commit a minimum Rs 10,000 towards this plan and can increase the amount in tranches of the same amount. One can use this amount when he feels the market conditions are conducive for trading.
The brokerage will get deducted from this amount each time you transact. And, all other charges and taxes must be paid separately.
What Life-time?
"It will last for as long as the customer stays with us or exhausts the entire amount," says Nandip Vaidya, president-broking, IIFL.
That said, either of the plan does not offer an easy exit. I-Sec's head-equity products, Vishal Guleccha, deems the plan a kind of an 'irrevocable contract', meaning customers cannot exit the plan mid-way.
Any unutilised amount will be refunded to the customer only post the validity period.
So, say you opt for the base plan of Rs 25,000 and were to stop trading or change your brokerage firm after a year, you must wait for 14 years to get your money back.
IIFL does allow customers to exit mid-way.
But, in this case, the brokerage, so far enjoyed at a concessional rate, will be calculated at regular rates.
And, the money will be refunded only after deducting the additional amount payable.
Existing Versus New Launches
These differ from existing plans offered by most leading brokerages in two ways: validity period and volume commitment.
Most existing plans are valid for three months to 1 year at the most, as compared to the 'life-time' validity offered by I-Sec and IIFL.
Existing plans start from Rs 1,500-2,500 onwards.
However, investors must expend the entire amount during the period, else they have to forego the unutilised amount.
This indirectly translates into a 'volume commitment', that is, you must buy or sell stocks or derivative contracts of a specific amount, which can be quite substantial.
Say you opt for Rs 2,500 plan with a validity of 1 year and a concessional brokerage rate of 0.4 per cent (including service tax). If you opt for only delivery-based equity transactions during the year, your turnover must be Rs 10 lakh.
Should you opt for these?
As the life-time plans offered by I-Sec and IIFL do not provide an easy exit, investors can get stuck or end up paying higher brokerage amounts to exit.
Vinay Agarwal, executive director, Angel Broking, advises, "Before opting for prepaid plans, clients must check their average brokerage expenses to gauge their trading activity levels.".
He suggests clients who spend over Rs 5,000 as brokerage should consider the typical one-year prepaid plans.
