Look for value from brokerages

While brokerages are coming out with interesting concepts like zero brokerage on daily losses, investors should look at the fine print

Retail investors start flocking to the market when it creates new highs. To tap such investors, brokerage houses come up with attractive propositions. These intermediaries will charge customers brokerage fees only if they make profit. In case of loss, they will let go their fees. ICICI Securities has introduced such a product called I-Gain, which allows a customer to buy and sell Nifty contracts. This is a stop-loss based product.



“There is a general belief that traders don’t make money. In our 14 years of existence, we have realised that people do make profitable trades but their profits are small and losses, big. Our research of 10 years and across 3.2 million customers show retail customers tend to sell winning investments while holding on to their losing investments. By introducing this product, we want to reverse the trend,” said Vishal Gulechha, head of equity product group at ICICI Securities.



Another broker from Bengaluru, WealthRays Securities, had launched a product with the same principles in mind. On average, WealthRays Securities sends three recommendations with a target to clients in each trading session. If the client makes money through the broker’s tip, only then are they charged. Else, the brokerage fee is waived.

This is available with prepaid recharge vouchers of Rs 1,000, Rs 2,000, Rs 5,000 and Rs 10,000 for the ‘research service account’. “We have schemes for all asset classes, be it equity or forex or commodities and we charge a flat brokerage between Rs 50 and Rs 100 depending on the asset class,” said Kiran Kumar Kavikondala, chief executive officer of WealthRays Securities.



According to experts, these schemes make sense for clients who conduct frequent trades and have a really large turnover. “If the turnover of the client is just a few lakh rupees, it makes no impact on their overall profit or loss,” said the head of retail broking business at a brokerage house.

Suppose a person buys Nifty futures worth Rs 1.45 lakh - where the brokerage fee is 0.01 per cent, and sells it at Rs 1.35 lakh. There is a loss of Rs 10,000. For the two trades, the brokerage fee will work out to  Rs 28. However, the person will need to shell out Rs 45 in other deductions, which include securities transaction tax, transaction charges, service tax with cess, Securities and Exchange Board of India charges, and stamp duty.



For smaller clients, the best strategy is to look at other value propositions of the broking house, such as quality of service, research calls and the trading platform. “Investment decisions are never based on brokerage charges and we have seen clients only do 15-20 per cent of trades on broker recommendations,” said an executive with a brokerage house.