Most young investors have jumped into the equities bandwagon. Although it's great to begin investing at an early age, it is just as important to understand what you are getting into. Investing in the right stocks is critical; choosing the right broker, too, is quite important. Here are five key factors to consider before opening a brokerage account.
Always compare brokerage costs
Fees will eat into your investment returns. People often overlook this aspect when opening an account and later wonder why they are paying more fees than their peers. There are two types of brokers to look for: discount brokerages and full-service brokerages.
Discount brokers are better for more experienced traders seeking low fee and low commission trades. Some brokers such as Finvasia do not levy as fee, while others such as Zerodha charge around Rs 300 per year. Discount brokers let you trade on your own using the platform's existing tools and charts, but offer little to no guidance. You need to use other investment platforms to conduct better research.
Full service brokers
Full service brokers such as Sharekhan and ICICI Direct are great for those seeking a one-stop shop for trading, research, and advisory services. They may charge more than discount brokers, but they do a great job of helping you understand investments and guiding you to reach your goals. All of the help comes at a higher price.
Full-service brokers charge 0.50 percent for each equity trade and an annual fee as well. In addition to initial investment advisory and tax tips, full-service brokerages also help you manage and curate your portfolio to meet your objectives. Getting consistent professional advice will always help you as you learn and build an investment portfolio.
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Seek a brokerage that does ample research
While investing, it is imperative to understand the securities you are trading in so that you are able to come up with an investment strategy. You cannot do this without conducting research on each security. Beginners may find it difficult to read through company profiles, financial reports, and conduct fundamental analysis, but many brokerages simplify this information through their various tools.
If you want the best research done for you, then choosing a full-service broker may be best. ICICI Direct, Angel Broking and HDFC Securities send you trading tips, market reports, news alerts, and analyses of your trading results. However, if you are a seasoned investor or know how to do your own research with financial reports and basic graphs, then Finvasia and Zerodha would be enough.
Working with a brokerage that prioritizes you
For the most part, you will not need to reach out to customer service for help with the app or your account, making this a low priority for most potential investors. That being said, most seasoned investors will tell you that this is, in fact, one of the most important factors of a successful brokerage.
Trades are extremely time sensitive and the worst situation to be in is if you have issues with your account and are not able to speak to a customer service representative. Most full-service brokers are great with customer service because they not only offer toll free numbers to call, but also offer additional SMS, email, and trade desk calling services to help you reach the right person. Solid customer service is crucial for a smooth investor experience.
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Is the portal easy to navigate?
It is always good to have an easy and navigable user interface (UI) when trading online. When you invest, you need to be able to be comfortable looking through your holdings and your overall portfolio. Furthermore, there is no point having all the great tools and graphs offered by the brokerage if they are complicated or difficult to locate. The UI design and navigation of your platform must be seamless and easy to use to allow you to trade efficiently.
Do you get a periodic analysis of your portfolio?
Brokers are also equipped to give you quarterly or annual reports of your portfolio's performance. This is a rule that primarily applies to those interested in full-service brokerages.
If regular performance updates are important to you, you should compare the analysis and reports that you will receive to make sure you get the most out of the service. Timing is also crucial, as more frequent quarterly reports can help you stay on track with your investment objectives.