So, you are thinking about stock market investments. And of course, you’d need a demat account for you. And now you might be thinking – How to choose a stockbroker in India that works the best for your trading requirements, right?
Well, this is a question that every trader definitely asks him/herself at least once in his/her life. A lot of those actually ask this question more than once!
In this review, we have tried to collate some of the most important aspects once must be looking at while answering this question of how to choose a stockbroker in India. Hopefully, by the end of this review, you will be able to take a call on how you should be going about it.
How to Choose a StockBroker?
Since you are reading this article on how to choose a stockbroker in India, it’s sure that you are looking to enter into the world of stock markets.
If done correctly, investing or trading in stock markets can provide highest of returns than a lot of other market options. Nailing down on one particular stockbroker is more difficult than it may sound.
A wrong judgement at this point in time may lead to wastage of brokerage money, time and not to forget ample money making opportunities.
In the pursuit of knowing how to choose a stockbroker for yourself, don’t commit these 3 mistakes:
Choose a stockbroker that is being used by your friends or family. Every investor or trader has different requirements and it is not one size fit all.
Don’t get influenced by advertisement campaigns, mostly those are gimmicks
Don’t completely trust the call you get from the broker executive, make sure you verify the facts and numbers stated.
Before you dig into different aspects that need to be considered while choosing a stockbroker, you need to decide on one particular thing – Are you a trader or an investor or both?
If you are a trader and will make regular trades, then you would need Low brokerage charges to go along with High performing trading platforms. There are some brokers that charge a fixed brokerage amount or fixed monthly brokerage (unlimited trading) that might work in such cases.
On the other hand, if you are an investor and are looking for long-term investments, then you might not be much wary of brokerage charges than the predictability of research and tips. However, if you are both – an investor and a trader and will transact based on the market momentum – then your expectations will be even higher.
Let’s dig deep into 9 different aspects now (in no particular order) and make you ready to take a decision by the end of this article! We will try to give some reference stockbroker examples (wherever possible) as well who are good and who are not so good in that particular aspect.
1. Broker Types
Till 2010, the whole stockbroking space in India was pretty much uni-dimensional. All stockbrokers provided a cohort of services to their clients and charged a percentage commission on each trade. Thus, higher the transaction value, higher you’d need to pay to the stockbroker. Such stockbrokers were called Full-Service Brokers.
Then a few years back, discount broking concept was introduced in the Indian stock market. In 2010, Zerodha was the first to launch such a business model in India. Discount brokers provide no-frill trading experience to its clients and are primarily online in nature.
They provide trading platforms and a trading account to their clients without any research reports, physical presence commitments.
Make sure when you answering this question of how to choose a stockbroker, Pricing is not everything but it is one of the important factors in deciding to go along with other important parameters. When we say pricing, it implies:
Account Opening Charges
To open a demat and trading account with a registered DP (Depository Participant), one needs to pay certain charges (called Account Opening Charges). These charges vary from one broker to another and are decided by the stockbroker itself. Some of the stockbrokers charge pretty high account opening charges while some of them offer it for free as well.
As touched slightly above, different types of stock brokers charge brokerage differently. Full-service brokers charge trade value percentage as the brokerage while discount brokers charge a flat brokerage irrespective of the trade order value. Few stockbrokers, these days charge a fixed monthly or yearly brokerage charge for unlimited trades throughout the period.
You need to be wary of the fact that how much brokerage you pay to your stockbroker otherwise you might be paying a huge chunk of your profits. Also, remember to negotiate with the broker while opening your account.
Some of the stockbrokers like Zerodha, implies no fees for Zerodha mutual fund investment along with the direct plan that allow investors to invest fund directly without the involvement of intermediaries.
They will say these are company fixed charges or something like that, but brokerage charges are always negotiable.
There is another charge that you need to pay on a yearly basis to maintain your demat and trading account with your stockbroker. Again, like account opening charges, Annual maintenance charges (or AMCs) vary from one stock broker to another.
If you are looking for a long-term investor and will not be trading on the regular basis, then we suggest you go ahead with brokers that have low or almost no annual maintenance charge otherwise you’d need to pay this cost on a regular basis without you using their services.
You’d need to deposit a certain amount to your trading account before you can carry out your trading transactions on the stock market. Margin money is basically your balance in the account. With full-service brokers, the brokerage percentage you pay depends heavily on the margin money you pay upfront.
More the margin money, less is the brokerage percentage you’d need to pay to the broker. Thus, be sure that you do have a round of negotiation while you commit a certain amount of margin money with your stockbroker.
Other Hidden Costs
Some stockbrokers levy some hidden charges that are not generally opened up during the account opening process. Make sure to have a detailed discussion and ask for an email from the broker with all finalized charges before you open an account and start trading.
3. Range of Trading Segments
Different people like to invest and/or trade in different types of financial products including Equities, Commodity, Currency, Mutual funds, IPOs, NCDs, FDs and so on. Narrow down your preferred trading or investment products and check what different stock brokers have in store.
If you want to invest in mutual funds in a few months from now, you need to make sure whichever stock broker you choose MUST offer mutual funds as one of the investment products.
If you open your demat account with a bank stockbroker (such as ICICI Direct, HDFC Securities), then it provides you with a 3-in-1 demat account and you don’t need to worry about fund transfer every time. However, if you open a demat account with a non-bank stockbroker (such as Zerodha or Angel Broking), then you’d need to transfer money every time it dries out in your trading account.
Although most of the stockbrokers have online affiliations for fund transfers these days it may be a hassle sometimes.
A lot of times, one would like to meet in person with the stockbroker through its franchise or sub-broker network. These discussions are generally towards getting a vibe of the portfolio or general understanding of market behaviour. This is where the physical presence of the stockbroker in and around your region will come into play.
For instance, India Infoline has a sub-broker and franchise network of more than 4000 across India.
Discount brokers, on the other hand, do not provide this facility while it is one of the selling points of full-service brokers. They create a huge network by setting up sub-broker partnerships and franchise networks in different parts of the country.
With the world converging towards digitization (especially India), online trading platforms are coming to the forefront in terms of the top deciding parameters for a stockbroker. Although few stockbrokers still prefer to provide NSE, BSE based trading platforms to their clients (which is fine), there are a few who are betting technology as the TOP driver of their brand.
In fact, some of the stockbrokers have come up with some of the most usable and unique features within their trading platforms. Another few, don’t charge brokerage based on trades but depending on the platform the client chooses to trade from their array of platforms.
Some of the features that are crucial to have in trading platforms are:
Performance/Speed of the software
Reliable order placements
Secure trading environment
There may be few more features are may be necessary for some traders. Thus, make sure the stock broker’s trading platforms pass through your list of preferred features and expectations.
Whether you are an investor or a trader, your expectation of an expert research team will always be there from the stockbroker. Especially a trader would seek to advise every now and then so that he/she can go ahead and place orders accordingly.
Discount brokers don’t really provide any market research reports or intraday tips to their clients while most of the full-service brokers keep an in-house research team who are qualified from both education as well as experience level across different financial segments.
They’d appear on different finance-related TV channels to voice out their opinions on the current market situation.
A lot of newspapers and journals such as Economic times etc publish articles from these experts on a regular basis. You can be watchful to see who is appearing in newspapers, journals, magazines, TV shows more prominently. You may not be sure but still will have an idea of who are the prominent research houses of the country.
When a choose a stockbroker, you need to understand that Customer service is more than just resolving administrative concerns. Customer service also includes:
Complete resolution with lowest turnaround times
Availability of customer service across multiple channels such as phone, email, chat, social media, bots etc
Availability of customer service more as much time as possible across the day
Customer service in multiple languages apart from just Hindi or English
Structured escalation process in case of non-resolution of issues
Although a few stock brokers are known for really bad customer service, some of the stockbrokers provide reasonable customer service (however, customer service is a matter of subjectivity as well). We’d also advise you not to follow reviews on websites such as Mouthshut etc., since a lot of times, stockbrokers fill in fake reviews against their competition.
One of the better ways to judge customer service quality is talking to people in your family and friends circle who have accounts with your preferred stockbrokers.
Last but not least by any means is to understand and know the market reputation and history of the stockbroker. Although we talk about discount brokers, most of them are recently established – thus, there will be very little less history.
However, you can check out how such stockbrokers have evolved in their span, in terms of employees, daily turnover value, financial segments offered, number of active clients etc.
As far as full-service brokers are concerned, well, most of them have a history to display. Some of the stockbrokers were established as back as the 1980s, thus showing the legacy some of those might have built by time.
The market reputation of full-service stockbrokers can be judged on the basis of daily turnover value, the number of franchises and sub-brokers across the country, parts of the country focussed, brand name recall etc.
In the end, we will suggest that before you finally choose a stockbroker, you must have a detailed discussion with your preferred stockbrokers and knuckle down on aspects such as brokerage, annual maintenance charges and so on.