During the nationwide first lockdown because of the COVID-19 pandemic, several millennial investors had jumped into the equities bandwagon. SEBI chairman Ajay Tyagi said in his speech at the International Trade Fair in November that nearly 26 lakh demat accounts were opened per month in the current financial year, as opposed to just 4 lakh new demat accounts every month in 2019-20.
Although it's great to begin investing at an early age, it is just as important to understand what you are investing in and platform you choose to invest. There are several traditional and new-age discount stockbrokers such as Zerodha, Upstox, Groww, FYERS and Paytm Money. Choosing the right broker for equity investments is quite important.
Here are some key factors to consider while selecting a discount brokerage firm for opening an account.
Traditional Vs discount brokerages
Traditional brokerage firms focus on providing regular trading tips to their clientele. “They primarily based their business model on the fact that most people require trading ideas, which is what these brokerages provide,” says Tejas Khoday, Co-founder and CEO of FYERS.
Now, discount brokerages are fintech platforms that offer standardised execution services, but don't offer trading tips like their traditional counterparts. “Discount brokerages cater to the growing active trading/investing community in India that prefers to self-educate and take independent decisions,” says Khoday.
“But, if the investor is looking for institutional research advice, desk support for orders, portfolio management services or margin-based trading, then it makes sense to go for full-service brokerages,” says Parijat Garg, a fintech consultant.
Transparency in pricing
Discount brokers are transparent, with flat fees structure that is mentioned in their websites. They charge a flat fee of around Rs 20 per transaction regardless of trade volumes, which is a huge saving (about 95-98 percent) for traders and investors. So, anyone who does frequent transactions, intraday, positional, etc., would save on brokerage.
Typically, the price structure of a traditional broker varies from client to client and depends on volumes. Sometimes, old customers get favourable rates. So do those that have long-standing banking relationships with their sister banks. Some brokers allow for negotiations. Fees here range from 0.3-0.5 percent of the transaction value.
Credibility and experience of management team
While selecting the broker, you need to look at the credibility of the founders. “An equity investor will benefit the most if the brokerage's management team has powerful experience, passion for the stock markets and the requisite knowledge to provide the most seamless experience,” says Khoday.
An easy-to-use interface also helps the beginner invest smoothly. Many new digitally-focused discount brokers come with easy-to-use interfaces as they are targeted at first-time users. “When you invest, you need to be comfortable looking through your holdings and your overall portfolio,” says Nikhil Aralimatti, Business Analyst of Zerodha. There is no point having all the great tools and graphs offered by the discount broker if they are complicated to understand or difficult to locate. The UI design and navigation of your platform must be seamless and easy to use.
Check for value-added services
Value-added services such as capital gains report, details of trade confirmations, tools and calculators are useful for investors. “Some discount brokers allow investments in domestic and international stock markets. Such value-added service is useful if an investor wants international exposure in the equity portfolio,” says Srikanth Meenakshi, Co-founder of PrimeInvestor.in.
Discount brokers also offer high-quality research reports from independent research organizations. For instance, FYERS has partnered with William O'Neil for equity research reports, which users can subscribe to at additional costs.
It helps if your discount broker offers you with knowledge through various means: blogs, videos and podcasts.
Assess users’ reviews and technical glitches
Ask around if users/investors have heard of the discount broker app through which you wish to invest in equities. Garg says, “Go through the user reviews and ratings on Google play store or Apple App store and understand the typical challenges recently faced by the existing investors. Carefully check for poor reviews with one or two stars from recent dates and see the challenges investors are facing.” This way, you know the shortcomings before signing up and there are no surprises.Also, it’s important to evaluate the frequency of complaints against a discount broker. Check on social media for complaints on stock prices not getting updated or trades not going through at peak times due technical glitches etc.