One of the pre-requisites of starting an authorised person business is the deposit. It is an amount demanded by the stockbroker to allow an authorised person to associate with them. Some stockbrokers are very upfront on the deposit amount they require, and others will give you a range, which can be between Rs 50,000 – Rs 3,00,000.
The authorised person agreement contains the details regarding the authorised person deposit. It describes the components, fees, and other essential information on the deposit amount, which the authorised person must fulfil. One of the significant points of the agreement is the payment of the authorised person deposit to get the rights to do business with the stockbroker.
Authorised person deposit is a one-time payment that every authorised person must pay. But is it possible without a deposit? In some instances, yes. But, before discussing the matter in hand, let us also look at authorised person deposit and try to gauge its importance.
Authorised person deposit: Key Highlights
Authorised person deposit is a one-time fee demanded by the stockbroker to allow authorised persons to do business with them. It is refundable and returned to the authorised person at the termination of the agreement. Now, let us discuss the main characteristics of it.
– It works as a guarantee for the stockbroker to safeguard against any future payment delay or failure
– It is mostly refundable, returned at the end of the contract
– It can be paid in forms of cash or shares
– Authorised person deposit has a vital role to play in deciding commission structure between the stockbroker and the authorised person
– Higher the volume of the deposit, higher will be the percentage of commission
– With the deposit, the partner opens a DEMAT account with the stockbroker to carry out official transactions
– Some stockbroker, especially the new ones, may offer zero deposit fee partnership as their business policy to expand their authorised person network
Types of authorised persons:
Authorised person deposit is often linked to the business model agreed between the stockbroker and authorised person. When we say an authorised person without deposit, a lot depends on the agreed-upon terms of business. To understand it better, let us look at the common authorised person patterns.
Master Franchise: An authorised person can obtain a direct franchise from a broking house. They usually work under the banner of the broking house and need to get office space to run the business.
Authorised Person: An authorised person is an authorised person who is registered under the exchange. The AP model also needs an initial deposit.
Remisier: A Remisier works on a commission basis, usually at a lower percentage than a franchise or an authorised person, and his primary role is to bring new business to the broker. They do not carry our actual transactions.
Introducer: An introducer will only give prospective clients references to the stockbroker. They receive a commission when the client gets converted.
Other costs of an authorized person
Authorised person deposit is not the only cost involved. An agent may also have to make initial payments towards SEBI registration and renting office space, hiring employees, and more.
Authorised Person Without Deposit: Is It Possible?
Yes, under certain circumstances, you might strike a deal with a zero deposit. Earlier, only introducers could enter a partnership without paying a deposit. But nowadays, many broking houses have lowered their deposit rate or eliminated it to remain in the competition.
Sometimes, a stockbroker might offer attractive zero deposit deals to reputed authorised persons who can promise a volume of steady business every month.
Now, before you toy the idea of becoming an authorised person without deposit, consider the long-term benefits. If the stockbroker is a new one, then you might have to find their reputation in the market and long-term business possibilities before committing.
To start an authorised person business, you need to make an initial payment known as an authorised person deposit with the broking house. It works as a cushion for the stockbroker against any payment failure. The deposit amount will vary between the stockbrokers, while old and reputed one may charge higher rates than the new ones. But an authorised person without deposit is also a growing concept, adopted by many stockbrokers in the face of growing competition in the market. Evaluate all your options with time before committing to a proposal.
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