Trade Big, Pay Less! Thanks to the Discount brokers! Author: Fintuned | Date: July 23, 2017

• advice broker brokerage clients commission discount fees industry investment risk service stock trade trading

Shopkeeper: Rs. 51,500/- only.

Me: What??????

Shopkeeper: It’s an iPhone, Ma’am.

Me: Yeah, right. (Grumpy face)

And I came out of that shop with a heavy heart knowing full well that my Dad had just spent half a lakh rupees on a phone he would use only for making and receiving calls, something he was easily doing with his Nokia 6600 (whose even scrap value is zero) all these years.

I am sure we have all felt this feeling. When we ordered double cheese lasagna (with guilt trips) at our favourite restaurant when all we needed was Daal-Roti to quench our hunger. Or when we bought the top model of a car with Bluetooth, touch screen and speakers knowing well that we wouldn’t use these features.

Already feel that pain??

Let me make your heart heavier.

All these years, you have been spending your hard-earned money doing exactly the same thing in your day-to-day life when you gave away 0.5% brokerage to your stock broker who included the cost of advice you never used, research you never needed and consultation you never required in that brokerage.

Yes, it’s true! Stock brokers in India typically charge a brokerage of 0.3%-0.5% on delivery transactions comprising the 3 major – costs of execution of trade through the exchange, cost of advice and the cost of funds blocked by the broker from the period of settlement with the exchanges. Hence, you are even charged for services you didn’t consume and the higher your trade value, the higher the commission.

This is where discount brokers come into the picture.

Discount brokers give us the option to choose. They are also known as ‘execution-only’ brokers who provide very competitive brokerage rates with good customer service. You can place your orders online or by phone. Most of the discount brokers charge a fixed price-per-trade, varying from Rs. 9 to Rs. 20 per-trade.

For example, ‘Zerodha’ – which is among the first few discount brokerage firms in India – charges Rs 20 per-trade. Hence, you have to pay only Rs. 20 for a transaction of Rs. 1, 00,000 – instead of the Rs. 500- (Rs. 1, 00,000*0.5%) that the traditional stock brokers charge.

But, how are they able to survive the competitive market with such low commissions?

Well, they offer no investment advice, personal consultations, research or help with tax planning. Hence, they employ less number of people as they do not need research associates or stock analysts and cut down on salary costs.

Also, there is no cost of funds involved as no working capital is blocked by the discount brokers. For example, the trader desiring to buy Rs. 1,00,000 worth of shares would have to pay up the entire Rs. 1,00,000 on T Day (and not T+2) and pay a brokerage of only Rs. 20 for the transaction. He cannot buy stocks worth Rs. 1, 00,000/- with a commitment to pay off the balance by the settlement day.

Should you choose discount broking over stock broking?

• It is advisable to choose a discount broker over a stock broker if your trading volume is high. Refer the example of Rs. 20 in discount broking vs. Rs. 500 in traditional broking above.
• Opt for discount brokers only if you know your trade well. There is no point in being ‘Penny wise, Pound foolish’ and incurring more losses in trading without any advice than saving money by choosing discount brokers.

How to choose the best discount broker?

• Check the Rates – Choose a discount broker that provides lowest price-per-trade or gives the best monthly unlimited plan.
• Compare the ‘Other Fees’ – Take note of the fees for closing an account, fees for transferring assets into the account, account inactivity fees, wire transfer fees etc. charged by brokers and compare them to come up with the best option.
• Read reviews on the Customer service – It’s important to know the kind of customer care service that the brokerage offers. You certainly do not deserve to save a few thousand and spend hours connecting to the customer service.
• Know your Investment products – All discount brokers offer stocks on the major exchanges although choices such as government bonds, options, corporate bonds, and the like are not available through every brokerage. Hence, it is important to determine what you need.

Now, it’s time for some brain storming on your part as we introduce you to some of the best discount brokers in India (Yes, I know you had been waiting for this all this while :P)

• Zerodha – One of the largest and oldest discount brokers in India started charging Rs 20 per-trade and changed the entire broking industry. Today, the company caters to more than 50,000 clients.

• RKSV- They charge Rs.20 per trade irrespective of the size of the trade. Apart from that, they also offer their clients with 5 free trades per month for life. For traders preferring monthly plan, they offer unlimited monthly plan at Rs.1999 per month.
• SAS online– It offers the cheapest brokerage service charges – Rs. 9 per executed order. It also provides its customers monthly unlimited plans at Rs. 499 and Rs. 699.
• TradeJiNi: It entered the discount brokerage area recently, have made a mark because of their excellent customer service. Their founders, with three decades of knowledge in trading, have imparted faith in the traders with their expert advice.
• TradeSmartOnline: It is a subsidiary of VNS Finance Capital Services Ltd. VNS has good standing in the Indian share market and has trader friendly plans based on fixed charge and monthly based schemes.I wouldn’t be exaggerating if I conclude that the trend in the broking industry clearly seems to be shifting from the full-service brokers to discount brokers. However, while choosing, it is important to consider your investment and risk attitude and consider the flexibility of a full-service broker vis-a-vis the cost advantage of a discount broker while making any decisions.

Till then, Happy Trading!

Cheers!