Investors need to evaluate the offerings of a broker in totality before selecting one.
Sanjay Kumar Singh and Tinesh Bhasin report.
Illustration: Dominic Xavier/Rediff.com
While banks-cum-brokers tend to have higher brokerage charges, Axis Securities recently rolled out 'India, Trade@20', a low-cost plan that charges a flat Rs 20 per trade, so as not to lose out on price-sensitive customers.
Paytm Money has just received a broking licence from the Securities and Exchange Board of India.
Since it is backed by deep-pocketed investors, analysts expect it to launch an aggressive pricing model to garner market share.
And a few months ago, Zerodha, riding on its low-cost proposition, emerged as the country's top broker by number of active unique client codes.
Even as broking in India moves inexorably towards lower costs, investors, especially the more seasoned ones, need to evaluate the offerings of a broker in totality before selecting one.
Consider volume of transactions:
A novice entering the equity markets for the first time may perhaps opt for a bank-cum-broker.
They offer the benefit of a gamut of services at one place.
"We offer research and the entire bouquet of banking products. Currently, we also provide our own non-discretionary PMS and are looking at offering some more options on stock advisory in collaboration with other players," says Arun Thukral, MD and CEO, Axis Securities.
A bank-cum-broker has an established brand name that inspires confidence in a new entrant.
At this point of time, he may need advice on what to buy and sell, which only a full-service broker can provide.
Full-service brokers, however, have higher broking charges.
They charge a percentage of the total cost of securities bought or sold.
Discount brokers, on the other hand, today charge a flat fee of Rs 15-20 per trade (please see table), irrespective of the value of the transaction.
Some like Zerodha, Upstox and Fyers also charge zero brokerage for delivery-based equity transactions.
"A new entrant usually has a lower volume of transaction. Hence brokerage cost is not of the utmost importance to him," says Vikas Singhania, executive director, Trade Smart Online.
But as the investor becomes more seasoned and her/his trading volume rises, s/he is likely to find a percentage-based fee burdensome.
S/he should then shift to a discount broker with a flat fee.
S/he should also take a host of other factors into consideration.
Take the example of 28-year-old Tanay Baldua as an example.
He started with a full-fledged broker initially when he was new to direct equity investing.
As he started trading regularly, he opted for a discount broker after seeing his friends use the platform.
"While I opted for a discount brokerage, cost was not the key criterion. I liked the platform, the user interface was intuitive, and the pricing was also attractive," says Baluda.
Transparency in charges:
Go preferably with a broker whose cost structure is simple, with every charge stated upfront.
Visit her/his web site and examine his cost structure.
There should be no asterisk mark that says: Conditions apply.
"Low cost should not come with conditions attached that enhance the customer's cost in any way," says Nithin Kamath, founder and CEO, Zerodha.
Watch out for hidden charges, like higher DP (depository participant) and clearing charges.
Look for a stable platform:
A trading platform should have a high level of uptime. It should stay up, and not crash, even on days when the market sees high turnover or volatility," says Tejas Khoday, co-founder and chief executive officer, Fyers Securities.
"If a trading platform goes down, or there is a loss of connectivity, it can have significant impact on traders' gains and losses," adds Khoday.
Execution must be speedy:
Prices of stocks and derivatives fluctuate every second, even intra-second.
The trader may hit a sell order, but it may not go through that very instant.
The trader could then get a worse price.
Suppose that you buy a stock at Rs 100 for intra-day trading.
When it goes up to Rs 105, you sell it.
If the platform is slow, the price may come down to Rs 103 by the time your order hits the exchange, causing you a loss of Rs 2.
Tools and utilities:
Many brokers nowadays offer a variety of tools and utilities to enhance user experience.
Zerodha runs an educational portal on stock markets, where everyone's (customer or non-customer) queries are answered.
Fyers offers stock screeners and analytics.
Above, we have mentioned some of the criteria that are important for selecting a broker.
But how does a prospective customer get to know who fulfils these criteria? "Get feedback from fellow traders.
Participate in online forums where traders interact and share their views on brokers," says Khoday.
Singhania suggests going through broker reviews on established third-party review Web sites like Mouthshut.com.
Some brokers even offer a free trial period for, say, three days.
Opt for it. Most of them also offer free demos that will provide you a feel of their platform.
Also ensure that the broker you sign up with has an educated customer support team that understands the nuances of the markets and trading.