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Stock
Broker
Choosing A Broker
Online Broker
Selection
Online
Trading Tips
Demat Account
Demat Account Charges
Brokerage Houses
Brokerage Structures of Major Broking Houses In India
Broker
Comparison
Brokerage
House In Depth Details
Trading Through Mobiles
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There are more than 8,000 SEBI registered brokers and
sub-brokers, all providing a similar service, i.e., buying and selling
securities. Given this large number, it would be very difficult for you to
find the right broker. You must, hence, look for the following factors
before selecting a broker:
- Reputation: Broking is a business that requires a
low capital base. An individual/corporate/institution can acquire
membership as a broker of National Stock Exchange (NSE) with a net worth
of 100 lakhs. No wonder, the number of brokers has grown manifold. Hence,
it is critical to deal with a broker who has a good reputation. This is
broadly reflected in the past record and the credibility that he enjoys in
the market. A reputed broker protects the investor from default risk,
fraud and other financial risks. Several institutional brokers have an
impeccable track record. Some of these are,’ ICICI Securities’,’ HDFC
Securities’, ‘Motilal Oswal Securities’ etc.
- Flexibility: The stock exchanges follow the T+2
settlement schedule. This means that settlement occurs two days after the
transaction. Hence, if you decide to buy shares on a given day, you must
submit the cheque to the broker well in advance, so that he can deposit
the amount with the exchange. Some of the brokers do provide flexibility
in terms of payments made, while others ask for an upfront payment of
funds. Brokers also allow margin based trades and square off of positions
in intra-day transactions. Ideally, you must check with the broker as to
what are the facilities available.
- Broking rates: As per SEBI guidelines, a broker can
charge a maximum of 2.5 per cent of the consideration as brokerage. The
standard rate charged by most, ranges from 0.20 to 0.75 per cent for
delivery based and .001 to .05 for intraday.
Brokerage inflates the cost of purchase and reduces the realization from
sale of securities. You must therefore check the rates charged.
Sometimes,
a minimum transaction charge is attached irrespective of the value.
Brokers also provide competitive rates to the high value investors and to
regular traders.
- Different modes of transactions: An investor can buy
or sell securities, either by phone, by giving an order through the
internet or by making personal visits. The broker identifies transaction
done on telephone by an alphanumeric code allocated to the investor. Web
based transactions are conducted by using a user id and password on the
broker’s website. This is basically a unique identification for each
client and also a security mechanism.
Service
Quality: Service quality of the broker is another important determinant. For
instance, how fast a broker can transact for his clients reflects his
service standards. Since markets operate on a real time basis, at times,
small delays result in financial losses. Another aspect of quality is
transfer of security by the broker to the client account, settlement of
funds, timely dispatch of contract notes, providing transaction ledger to
the clients etc.
Selecting a depository
participant (DP): Gone are the days when shares were bought and sold in
physical form. In India, securities are, today, transacted in electronic
form, which is made possible by the process of dematerialisation (demat). A
demat account is where your securities are kept in electronic form. Just
like a bank account is opened with a bank, a demat account is opened with a
Depository Participant (DP). DPs are authorised by law in India to open
demat accounts and are agents of the depository, acting as intermediaries
between you and the depository. The DP set up works on a book entry form
where shares are debited and credited as and when clients buy or sell. A buy
transaction results in credit entry while a sell transaction leads to a
debit entry.
There are more than 250 DPs registered with two depositories in India, which
are NSDL (National Securities Depository Limited) and
CDSL (Central
Depository Services Limited). Once again, due to this high number, you must
filter the right choice before you open a demat account. There are several
kinds of DPs operating in the market. They can be broadly classified as
follows:
- Banks working as DPs such as HDFC Bank, ICICI Bank,
UTI Bank and several PSU Banks.
- Custodians such as Stock Holding Corporation of
India Ltd., Infrastructure Leasing and Financial Services (IL & FS)
- Brokers acting as DPs like ShareKhan, Motilal Oswal,
Anand Rathi etc.
- Others would include Indiabulls and Foreign Banks
How to select a DP of your choice:
You need to keep the following in
mind while selecting a DP:
- Reputation: Three leading DPs in India in
terms of number of demat accounts are ICICI Bank, Stock Holding
Corporation of India Ltd. and HDFC Bank. Though there is no method
available to grade DPs, certain past events give a fair idea of their
standing. When SEBI carried out inspections in the IPO scam in 2006, some
DPs were found to be following unfair practices and consequently penalties
were levied on them. Such events may be used as benchmarks for reputation.
Also, you should check whether the DP follows the guidelines imposed by
the depository while opening your demat account. The web page of NSDL and
CDSL provide FAQs for investors in this regard.
- Cost: With effect from 1st April 2007, SEBI
has made it mandatory for DPs to display the charges that they levy on
investors on the SEBI website. This is updated twice a year so that you
can analyse the charges of different DPs. Some standard charges are as
follows:
- Annual Maintenance Charges
- Charges for debit in demat account
- Demat and remat charges
- Charges for pledge of securities
It is important for you to
know that now DPs are not allowed to charge for opening accounts, crediting
demat accounts and transfer of accounts from one DP to another, if the
account is in the same name. Further, some broker DPs, don’t charge
separately for demat accounts. However they club these charges along with
brokerage. You must therefore clarify with broker DPs regarding the charges.
- Accessibility: Since you get only two days to
transfer shares from your account to the broker’s account in case of a
sale, you must check whether the DP is easily accessible or not. Investors
who have opened demat accounts with DPs, who are registered with NSDL and
CDSL for electronic transfer of shares, can avail of this facility. This
means that you need not visit the DP’s office personally to submit the
delivery instruction slip meant to transfer shares from your account to
the broker’s account. It would therefore be better if you avoid those DPs
who do not offer electronic transfer facility and are not well spread
geographically.
Need for a banking account: Transactions involving shares require
movement of money in and out of your account. Hence, bank accounts are
mandatory along with broking and demat accounts. You may use your savings
account for purchase and sale of shares by notifying the bank account
details in your demat and broking account.
Three-in-One demat account: Some brokers and banks offer a ’Three In
One’ demat account, where you open a demat, broking and bank account with
the same entity, in case of a bank DP. Elsewhere, if the DP is a broker, an
existing bank account can be used for the purpose of a ’ Three In One’
account. This ensures easy transfer of funds. However, in some cases the
brokers insist on opening a bank account with a particular bank as they
often have tie ups with that bank. These accounts or tie ups are beneficial
as they provide a one stop solution to you, thereby saving your time and
unnecessary paper work. This has also proven to be cost effective. E-trading
platforms are also available in most cases where, ‘Three in One account’
facilities are available. This facility is majorly given by banks serving as
DP and Broker
Requirements for opening a demat account: The following documents are
required to open a demat account:
- Proof of residence (NSDL and CDSL provide a list of
acceptable documents as POR which include electricity bill, phone bill,
ration card, driving licence etc.)
- Proof of identity (PAN card is mandatory)
- Bank account details (A cancelled cheque for
capturing MICR)
- Nominee details
Bank account details must get properly captured in a demat account as
benefits like dividend and interest are directly credited in the bank
account. Also, when you make an application for an IPO, you receive a direct
credit in your account to the extent of shares not allotted.
Requirements for opening a broking account:
The following documents
are essential to open a broking account:
- Proof of residence (A list of acceptable documents
provided)
- Proof of identity (Since PAN is must, it is used as
POI)
- Bank account details (cancelled cheque for direct
debits and credits)
What will happen if my DP goes
bankrupt or stops operation?
In a rare event of your DP going bankrupt or closing its operations, the
interests of the investors will be fully protected. In such situation, the
investor will be given an option of either transferring the securities to a
new DP or rematerialize the securities.....
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Selection
Starting investments: Once you are through with this paper work, you
are ready to start investing. Buying and selling shares on the market occurs
from 9: 00 a.m. to 3:30 p.m. on all working days. Stock exchanges don’t work
on Saturdays, Sundays and notified holidays.
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