Selecting best Indian stock broker

Are you looking out for your first stock broker or the next one? And have too many questions in mind? If yes, that’s good. If no, you may get a head ache later.

Before purchasing veggies or any eatable, their freshness is checked. Before giving the kids pocket money, the parents make sure that they do not misuse the money. Before making any investment and putting away your money, an affirmation is obtained that the money will payback good returns.

Similarly, it’s not just the stocks, even the stock broker needs bona fide research work done before taking up one.

Why?

To get a stock broker who fulfills your requirements and to not end-up paying for service you do not want and trades you didn’t want to make. With a wrong stock broker you may be holding too many bad stocks, paying cheques and receiving none, receiving worthless advices, etc.

But, what is your requirement exactly? So let’s start with what stock broker provide and do you want it or not?

Now, there are these big famous brokers like Sharekhan, MotilalOswal ; big bankers that have trading facilities like ICICI direct, SBI Demat; some not so heard of but big – Zerodha, RKSV ; and many small stock brokers. Which one should you go for?

The services all of them offer, the cost of trading, their attitude towards the clients, research reports, and their review in the market… all differs widely.

Parameters to select a stock broker in India

• Know your broker- some of the basic information about the stock broker you should know are the type of broker, supported exchanges, type of accounts.

Stock brokers are of two types- full-service and discount. Full service broker is the normal stock broker you have in mind. It provides other-than-stock investment options like commodity trading, foreign exchange trading, mutual fund, etc. They give us trading tips and advices. On the other hand, discount brokers charge less and provide fewer services. Most of the discount broker work online and everything from account opening to trading takes places online. In other words, they don’t have a physical location in various cities and operate from their corporate offices compared to full service broker whose office can be found in most of the major cities.

There are 7-8 active stock exchanges in India. No broker supports trading at all the exchanges, but see if it is a member of the stock exchange you want to trade in. NSE and BSE are two prime stock exchanges and almost all brokers are members of these two exchanges. For commodity trading there are several exchanges like MCX, NCDEX, NMCE, ICEX and ACE. Where do you want to trade? Is your broker a member of that exchange?

Big brokering houses provide combo packs of accounts you can open. For example, 3-in-1 account is savings, demat and trading account together, all linked up. Generally brokers with banks as their parent company offer this. There is also 2-in-1 account; everyone provides this-which is trading and demats together. Another one is equity trading account. It’s nothing too fancy except the name. It allows you to trade in all equity and related investments such as IPOs, Equity MFs, and equity derivatives. Different brokers offer you various altered packages.

• Cost of trading- brokerage is just one term that everybody talks about in cost of trading and try to find out a stock broker who charges the least. Sometimes offering low brokerage may be a trap, wherein the service is bad and there are many hidden charges.

At the beginning there is account opening fees. Of course, every broker has its own variant fee from Rs. 200 to Rs. 800. Then comes AMC i.e. annual maintenance charges of the trading account. What you will be charged depends on the amount of transactions. There is also a demat account opening fee and an AMC for it. Look at what a number of brokers are charging. You can have any number of trading and Demat account in your name.

Now what about the brokerage? Stock brokers are members of the stock exchange and only they are allowed to trade directly. The broker actually trades on behalf of its clients for which they charge a commission. Whenever you trade, brokerage gets deducted from your account at the end of the trading day. Further, there are a few types of brokerages.  A cash delivery brokerage is imposed when you buy and take the delivery of the stocks. Cash intraday brokerage is for intraday trading (buying and selling back in the same trading session). Margin trading brokerage when you trade on margin (a kind of loan taken from broker for trading); here too it is obligatory to square-off your positions. There is a separate brokerage for short selling and for trading in derivative segment.

You must know all these charges very well before trading and even before opening an account with any suitable broker. These brokerage charges vary a lot and you can have a discount broker charging Rs 20 per trade irrespective of the volume of the trade while for the same trade a full service broker will charge a percentage from you which lies anywhere from .2% to .5%.

Just to explain with an example, if you buy 100 share of Reliance trading at Rs 1,000, total traded value is Rs 100,000. For this a full service broker will charge anywhere from 200(.2%) to Rs 500(.5%) depending on its brokerage while the discount broker will charge only Rs 20. So you can see, you can save almost 90% of brokerage by trading with discount brokers.

• Investment options other than stocks provided

Traditionally stock brokers only dealt with providing services for equity trading. Now you can find a lot of products on the menu card of some stock brokers.  A brokerage house like Kotak or HDFC can get you equity, Mutual funds, insurance, bonds, derivatives, commodities, etc. all in one place. Brokers like MotilalOswal and Sharekhan do not have insurance and mutual fund to offer but they provide Portfolio Management Services (PMS) for HNI clients.

So which one would you prefer?

• Trading features

How would you like to trade? Which of the following trading features are you interested in? Trading platform have seen lots of change in last 3-4 years and most of brokers provide advanced charting and power trading platform to their clients free of cost. They services most of the broker now provide online are Online portfolio (viewing only, no trading), online trading, charts and technical analysis tools, mobile trading, automated trading (according to the preferences to put, trade automatically executes), SMS alerts.

With these modern features, which broker charges you less? Is cheap equal to bad quality of facilities?

You can ask for an online demo and assistance from the broker to use these. Additionally the working of the software or tools must be quick and easy to execute trades. Most of the time, you should be able to find reviews about these trading platforms making it easier for you to choose from among many options.

• Other facilities-

Everybody wants more and more facilities for ease of trading, and at a minimum possible cost. Does the broker have 24/7 customer service? Good email support (for transaction update and answering your queries) is necessary for you to have all records with you. Online live chat is one wonderful thing. It is quick and easy. Even at this stage when you are looking for the best broker, you can have a live chat and get all you questions answered. Phone support: – this is traditional and a basic necessity. Does the broker have a toll free support? Do they provide call-n-trade services and what are the charges for the same? Ask all these questions before deciding on the broker.

• Active or passive investment/ trading- How often would you be trading? Purchasing stocks and hold them for long period? Buying and selling in short term? Or purchasing frequently, making huge hold over years but not selling them?

Very active and active stock investors will require most of the facilities like online trading, phone trading with quick access, good communication with the broker and a bargain in brokerage. In the smart phone era, brokers have their mobile applications to view the markets and portfolio at any moment.

Passive investors can opt for all the facilities but they may not use it. Just ordering over the phone and a look at the latest contract note is all for them.

As per your trading and investment choice, you can choose a big broker with all latest facilities and low brokerage or just simply go with small traditional brokers.

• Review and ratings

In-personal referral is the finest to trust on. When some elderly or a friend suggests you a broker – that’s good. But don’t just blindly go with it. Get more and more information on the person’s experience.

Online reviews are also available. You can visit SEBI’s website to know if there is any case/complaints again the broker.

You can find a list of facts and questions above that you should know before you sign the brokerage form.

Find our list of top 10 India stock brokers here. You can find detailed review of each broker and choose who best fits your need.