What type of stock broker do I need?

Domestic stock markets have given huge returns post demonitisation, with Nifty rising to 10,400 in December 2017 from 7,500 in December 2016. People are increasingly excited about investing in shares, particularly youngsters. With rise in financial literacy and rising cost of living along with inflation, just a bank fixed deposit will never help in meeting the future needs of the generation. Hence, people are moving to higher returns potential securities such as shares, bitcoin and ETFs. However, investing in stocks comes with certain prerequisites such as Aadhaar card, PAN Card, Bank Account and the most important broker, without which you cannot buy or sell or shares on the stock market- whether BSE or NSE. Brokers are the members of the stock exchange. They are the intermediaries who buy and sells securities for their clients and earn a certain percentage of amount as their commission. There are tons of brokers providing different types of value added services to their customers. The question arises that which broker and what service do you require? How do you select the best broker for you? You know brokerages charge different percentage of commission to different customers. Not to mention but the broker would charge you more commission if you trade less frequently. If you are paying 0.5% to your current broker, there is high chances that the same broker would be charging as less as 0.1% to few of their customers. So I am writing this to help you decide which service and broker would you need as per your requirements and how to save significant money by choosing right broker. First, let's speak about the basic charges you might need to consider while making a demat account. The very first charge you might have to pay would be an account making charge, this is a one time cost and involve paying your broker to verify your documents, cover up their technological costs etc. This ranges from brokers to brokers (some broker might write off these charges for you). The other cost in holding a demat account is called an AMC or Annual Maintenance Cost, this is a recurring cost which you need to pay to your broker for maintaining your account with them. AMC ranges from zero to Rs. 1000 or more.There is something called as ‘basic demat’ which doesn't involve any AMC unless and until your total worth (account+cash) in demat account remains below or at Rs. 50,000. However, brokers usually won’t provide you an option for this type of account. The other significant cost is the brokerage cost which incure every time you buy or sell a security. As per the SEBI guidelines, a broker cannot charge more than 2.5%, there is no minimum limit prescribed. You also have to honor other charges such as taxes, STT, etc. when you buy or sell on an exchange. Following are the two major types of broker that you might need to consider while starting in the stock market Full-Service Brokers- This type of broker provides complete service for including but not limited to advisory, wealth management, trading and investment products etc. They charge significant high percentage of brokerage. It might range from 0.2% to 0.5% of brokerage on total value stock traded. Their AMC might range from Rs. 700 to Rs. 2000. They usually charge you higher fees and brokerage for their research and advisory services. Motilal Oswal Securities, ICICI Securities, Angel Broking, ShareKhan etc. are example of full service brokerage. You can consider to open account with them if you posses no knowledge of stock market, however their recommendations might not always reap you desired results. Deep Discount broker- This type of brokers charge significantly lower percentage of brokerage ranging for 0.10% of total value traded or Rs. 20 per trade, whichever is less. Their AMC ranges from 0 to Rs. 300. The reason they could afford to charge lesser amount is because they don't provide any research or advisory services. However, these companies have taken initiatives to train people in trading by organising seminars or educational websites such as tradeacademy.in. Example of these brokers in India are Upstox, Zerodha etc. On a personal capacity I would recommend you to learn basic investing techniques from various sources (I will write more on how you can do this easily in my next blog!), you can get various research sources from Google itself. Making an account with deep discount broker can lead to significant costs saving to you which results in higher returns. Got a question? Feel free to discuss in the comment section. You can write to me at naved.jahangir4@hotmail.com