Opening an online trading account is the first step an investor takes on deciding to buy and sell shares. But, opening an account that suits your needs can be confusing with every broking house selling at least three to five products.
While Sharekhan, for instance, has four different accounts to choose from, Kotak Securities offers seven types of accounts.
Compare fees
The first criterion to assess your broker is account opening and brokerage charges. Enquire what the broker is charging for. Sharekhan charges Rs 750 as account opening fees in the First Step plan for novice traders. Indiabulls and ICICI charge upwards of Rs 900 for the same facility.
“We include first-year demat account maintenance fee that is charged at Rs 450 annually. The remaining money is spent on agreements, which are part of the process, and on agencies that do client-servicing,” said Vishal Gulecha, head of equity products, ICICI Securities.
Apart from charging for their regular service, Indiabulls also makes the customer pay for the software the broking house provides for online trading. Many brokers keep their fees high to attract serious customers, especially to accounts where the brokerage fee is low.
“If the client generates enough brokerage through regular trade, we give them back the account-opening fees,” said Trivikram Kamath, head, operations, finance and technology, Kotak Securities. ICICI too gives back Rs 250.
An account for starters and customers, who do not use it daily, usually attracts high brokerage. In ICICI Direct 3-in-1 account, the brokerage varies between 0.25 and 0.75 per cent of the transaction value if shares are delivered in the demat account after two days of trading.
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If purchased and sold on the same day, the charges are between 0.03 and 0.05 per cent. Sharekhan charges 0.5 per cent of the transaction for delivery trade. Reliance Money has maintained the globally-followed model of flat charges. The firm charges an upfront fees and the brokerage is kept as low as 0.01 per cent for delivery-based trade. For instance, if an investor pays Rs 500, he can trade only for two months, or up to a turnover of Rs 1 crore, whichever is earlier.
Consider services offered
Brokers also offer services such as a dedicated relationship manager to assist the investor, if he is willing to start trading with a minimum amount of Rs 5 lakh. A trading account requires constant movement of money. It is essential, therefore, to check whether your broker supports the net-banking services of your bank. Being part of banks, broking companies such as ICICI Securities and HDFC Securities require the customer to have an account with their banks and allow money movement only through them.
Is call & trade charged?
Another essential facility is call and trade. All broking houses allow customers to call up their customer service centre and trade on phone. This is essential when the customer does not have access to computer or internet. But some brokers charge extra for this service. For instance, in a freeway account with Kotak, this facility is free only for the first 20 calls. Thereafter, the customer is charged at Rs 25 a call.
On many occasions, it is difficult to get through to brokers on their customer helpline, especially those with a large customer base.
Check on other fees
Also check for other charges and services of the broker, such as whether it is possible to get a hard copy of the contact note and other receipts.
Another criterion to narrow down your search for a trading account is to go for a broker who has credibility and has been in the business for long. Customers have faced problems with small brokers. In January, when the markets crashed, traders with smaller brokers were unable to sell their stocks and cut losses. This happened as stock exchanges suspended the accounts of these brokers as they could not maintain the required amount of money with the bourses.
Attend investor camps
As more small investors have got into taking direct exposure to equity, broking houses have started focusing on customer education. Almost all of them hold investor camps. After narrowing down on your choice of brokers, attend the camps, get product knowledge and select your broker.