Shopkeeper: Rs. 51,500/- only.
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?
How to choose the best discount broker?
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)
Till then, Happy Trading!