When it comes to choosing a broker, give equal weight to fee and safety

While low fee is tempting, make sure you can trust the broker with your money, securities

Around one million new demat accounts have been added each month over the past quarter, and a record of almost six million new demat accounts have been opened in the current calendar year. These new entrants into the stock markets need to choose their brokers with care.

An attractive brokerage fee is important, but it is just as crucial to partner with a broker with whom your money and securities will be safe.

Investors need to first decide whether they want to go with a discount or full-service broker. If you want to engage in futures and options (F&O) or intra-day equity trading, and your trading volume is likely to be high, you might be better off with a discount broker. 

To a buy-and-hold investor, who transacts less often, the fee is a less important consideration, and she may choose a full-service broker.

Your choice should also depend on whether you are a do-it-yourself (DIY) investor or someone in need of guidance. “Some customers are self-sufficient. They do their own research and select stocks themselves. They should choose a discount broker,” says R Kalyanaraman, chief customer officer, Espresso, Sharekhan’s discount broking arm.   Many investors, especially those aged over 35, feel the need for a branch network and a relationship manager to handhold them. They will be better off opting for a full-service broker. 

These brokers offer research reports for both fundamental investors and technical traders that customers can turn to for guidance. “Your choice of broker should be dictated by whether it is strong on research and advisory on stocks, including initial public offers, and mutual funds,” says B Gopkumar, managing director and chief executive officer, Axis Securities.

Broker frauds are a frequent occurrence in India. Hence, safety should be a primary consideration. The quality of the promoter is also important, and brokerages backed by large private sector banks score on this count. 

If you decide to go with an independent broker, go with one that has been around for a long time. “Longevity indicates that the broker has been able to survive the highs and lows of the markets,” says Kalyanaraman. He adds that as regulatory norms get tighter for brokers, many may not be able to survive. This makes it all the more important that customers go with established brands.    

The National Stock Exchange’s website has a page (https://bit.ly/30gQxKE) that provides the list of complaints made against brokers. 

That will give you an idea of how reliable the broker you plan to go with is.  In the past, most frauds occurred when a broker’s relationship manager took on the role of money manager, traded on the customer’s behalf, and lost money. 

“The relationship manager has an incentive to trade more frequently. When he does that, he takes on a higher degree of risk, which results in losses. Stay away from brokers who make such offers,” says Nithin Kamath, founder and CEO, Zerodha, the country’s largest stockbroker.