Yesterday I received this email from our subscriber Mufeed:
I bought 2,000 shares of Rasoya Proteins at Rs 0.40. Share khan charged me Rs. 200 brokerage (they charge minimum 10 paisa per unit). That’s a whopping 25% brokerage just for buying. It will be 50 % once selling is also considered. So I think these low priced stocks are not good with big brokerage firms. If I go with Sanwaria Agro, this problem will come again. At its current price, it will be 1.75 % brokerage just for buying. Should I start an account with a discount brokerage firm?
Why don’t you try writing an article in your blog comparing these new fixed brokerage firms and the old conventional ones? You blog seems to have an answer for almost all stock related doubts.”
Thank you for your feedback Mufeed. Here are my views on this:
The problem narrated by Mufeed is pretty genuine. This often happens for no particular wrongdoing on the part of a broker. Investors / traders should select their brokerage plans based on their objectives.
For Pure Investors: If you are someone who believes in long term investing, earning dividends and execute no more than 30-40 trades in a year then frankly it does not matter as to which stock broker you choose. Ideally, make a list of services you want from your broker and then compare the charges and services provided by different stock brokers (also see – factors to consider below).
For Investors & Short Term Traders: If you are an investor who also likes to trade in the short term, you should have 2 brokerage accounts – one with your bank to invest for long term and the other with a discount broker for frequent trading. Almost all banks these days offer a 3-in-1 (trinity) account facility which links your savings, trading and de-mat accounts. This makes it possible for investors to move money between accounts on real time basis.
For Pure Traders: If you are a pure intra- day /futures & options (F&O) trader, then you should seriously consider having an account with a discount broker.
Thumb Rule for Selecting Your Stock Broker:
Calculate the total brokerage you have paid over the last 3 months. If it is:
|Less than Rs 3, 000||Do Nothing|
|Between Rs. 3, 000 – 6,000||Stay with your broker; unless your trades are mostly in F&0.|
|Above Rs. 6000||Consider a Discount Broker|
* Consider this rule only if you have executed at least 30+ orders over the last 3 months including both buy and sell orders.
FACTORS TO CONSIDER WHEN COMPARING BETWEEN STOCK BROKERS
 Brokerage Structures – Full-service broker vs. Discount broker
Full-service brokers: Provide a variety of services in addition to buying and selling of securities including research reports, personalized advisory services and in some cases a relationship manager. As said above, having a brokerage account at the same place where you have your bank account will make it easy to transact. Examples of banking-brokerage houses are ICICI Securities, HDFC Securities and Kotak Securities.
Non-banking full-service brokers provide all facilities except a savings account. In this case you will have to separately link your bank account with your brokerage account to transfer funds between your accounts which will delay transaction time. Examples of non banking brokerage houses – Angel Securities, Sharekhan, and India Infoline.
My view: The big advantage of having a brokerage & de-mat account with your bank is the ability to transfer funds in real time. Research reports, advisory services, relationship managers in my experience are best avoided. They are likely to do far more harm to your portfolio than you can imagine. In the full service broker category – go with any banking-brokerage house (see also – commission rates table below).
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Also Read: Best Savings Bank Accounts in India
Popular Full Service Stock Brokers in India – Based on Standard Structure*
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*Note: In addition to this flat charge structure all the above brokerages also provide variable plans based on trading volumes. For example if your turnover in cash delivery exceeds Rs. 2 Cr in a month, you can opt for 0.15% delivery brokerage. Similarly if your volume in future trades exceeds Rs. 50 Cr in a month, your brokerage will be as little as 0.02%. The table below represents the variable brokerage structure you can opt for based on your volume of trading. This is similar for all full service brokers (with slight pricing variations) – though you should still be able to negotiate beyond this structure on case specific bases.
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Discount brokers: discount brokers provide basic trading facilities at the least possible cost. Discount brokers do not maintain research and advisory facilities. They try to give you the cheapest possible rates which are far more competitive than what a full service broker would charge. Examples of discount brokers in India – Zerodha, RKSV Securities, Samco (Company behind Indian Trading League), TradeJini and SAS Online.
Best Discount Stock Brokers in India – Based On Best Available Offers
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My view: Choose a broker who gives you the cheapest rates based on your trading objectives. Period. To compete in the market, many discount brokers have started providing research reports, trading software and other client enrichment services. Choose someone who does neither of this and focuses only on cutting costs. Think about it – ultimately the cost of all add-ons has to come from you – the customer. Why choose someone who isn’t running a tight ship when the sole objective is cost cutting.
 Minimum Trades with Prepaid Plans – Check if there is a clause about minimum trades that you will have to execute and the penalty for not complying with the requirement particularly when you are on the prepaid brokerage structure.
|Pay as you trade||You pay brokerage for each trade, mostly a fraction of your trade value for example 0.50% of your total trade value.|
|Prepaid brokerage structure||You pay flat monthly fees and in return you can place unlimited trades for zero brokerage.|
|Fixed pay per trade||The size of the trade is irrelevant. You will pay fixed fees irrespective of the value of your trade. For example Rs. 20/ executed order.|
|Also see: Brokerage structure tables above.|
 Research Reports – Most full-service brokerage houses offer research services. This allows investors to read analysts’ coverage on companies or sectors of interest, or access data on companies. See if you need these services.
— Rajat Sharma (@SanaSecurities) May 15, 2015
My view: These services are best avoided. Most of the brokerage-research houses are influenced and have poor quality research. Moreover, research reports issued by brokerage houses are available to all and not just their customers. These reports are projected on various websites and finance news channels. Ideally, this should never be your basis of selection.
 Call & Trade – Some individuals prefer to place orders over the phone. Personally, I think it is very important to have a broker who not only provides call & trade facility but is also very good with it. In past I have placed orders over the phone based on news and sudden events. Remember – you will not be in front of a computer all the time. If you are tech savvy and carry a smart phone, you may be able to download the online trading app for most brokers on your phone itself. I somehow still prefer the ability to call and place an order. After opening your account try out your broker with some call trades. The day you need it the most may be too late to try!
Final word: Let me put it this way – some stock brokers have advantages over others in some areas. If you are starting out for the first time in stocks then irrespective of your potential size of trades and frequency choose full service banking subsidiary for brokerage. While their brokerage structures can seem like daylight robbery their level of support and the ease of transactions will be unmatched.
If you are a more seasoned trader and would like to cut your brokerage costs, chose a low profile discount broker who focuses on cost cutting more than advertising and add-on services. You wont go wrong with that. There is no harm in opening more than one account and test driving what works the best for you.
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