When we talk of the best Demat account with lowest brokerage charges, we immediately think of discount brokers. Which is the broker that offers lowest brokerage charges in India and offers the lowest brokerage fees? Before entering into comparing brokers on charges and fees, and trying to find the best broker for your specific needs, let us first understand what exactly does broking cost cover:
Brokerage charges consist of the following:
- Actual brokerage charges
- Account opening charges
- Annual maintenance charges
- Fund transfer charges
- Research and other service charges
- Other hidden charges
When we try to understand the concept of low brokerage charges, we need to take a comprehensive view. Let us look at some practical examples, which will also work as a brokerage calculator for investors. Remember, lowest brokerage charges for trading in India are normally restricted to online trading only.
Practical examples of what low brokerage includes:
- Type A: This broker charges an account opening charge of Rs. 200 and an annual maintenance charge (AMC) of Rs. 300. However, brokerage rates are as low as 0.01% or Rs.20, whichever is lower.
- Type B: This broker’s brokerage charges are similar to that of Type A as is the account opening charge. However, the AMC is much lower.
- Type C: There is an account opening charge and an AMC, but the cost per lot is much lower at Rs. 9/lot. The combination of all these costs actually determines the break-even of your Nifty trade when you are trading in futures.
- Type D: They do not charge you account opening charges or AMC on an annual basis. The brokerage on all the NSE segments is Nil. That brings us to the fundamental question: how do they make money? These brokers make substantial money on float. Unlike full-service brokers, these discount brokers will not allow any position to be taken without pre-funding. Since the discount brokerage clients are spread across many small and medium-sized clients, there is always float that is available with the broker that can consistently earn above-average returns on products like liquid funds.
- There are also hidden costs that discount brokers impose on you. For example, there is a back-up call-and-trade facility which entails a cost when your internet is down. Secondly, any document request from the broker is debited as a small cost to you. Thirdly, fund transfers have a cost. While NEFT and RTGS do not attract any cost, transfer via payment gateways attracts a cost of Rs. 10 to 15 per transfer. Most discount brokers will also charge you additionally when the trader does not close out the intraday position by 3 pm and the trading system closes the position. All these can add up to quite a bit.
When we talk of low-cost discount brokerage, here are the 7 things to remember
- As discussed earlier, the cost of broking is not just about brokerage but also about other costs like account opening charges and annual maintenance charges.
- You need to judge the cost of the discount broker by imputing all these costs and then calculating the break-even level for the Nifty trade
- Focus on the service delivery and the technology robustness. Since this is going to be a 100% net driven platform, robustness matters a lot.
- Check whether there is a back up facility available like the call-and-trade facility which is foolproof and does not add too much cost on your pocket.
- Discount brokers are ideal if you are savvy enough to trade on your own. If you expect support in the form of research and advisory then full-service brokers will fit your bill much better.
- There is nothing like free brokerage. A brokerage who is not charging you any brokerage is still getting the benefit of your float and that adds up to quite a bit when your client base expands substantially.
- Watch out for the hidden costs and read the fine print. More often than not, the devil lies in the detail and that is where you need to dwell on.