Know Everything About Stock Brokers in India
Stocks in India are traded on stock exchanges like the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Metropolitan Stock Exchange (MSE) and others. To buy or sell stocks through these exchanges, you need a stock broker who will execute trades on your behalf. In return for this service, the stock broker will charge a commission—usually a flat fee or a percentage of the transaction value. Read all about brokerage charges.
If you are new to stock investments, it is important that you understand the services offered by stock brokers in India and how they function in the stock market environment. This article will explain why you need a stock broker, how to choose one, and more. Click here to learn how the stock market works.
Advantages of stock market investments
Can stock investments give your portfolio an edge? Let’s have a look at the benefits they bring.
1. Potential for good returns: The stock market does carry some risk, but it can deliver inflation-adjusted returns over the long run. This makes them a better choice than other assets like fixed deposits, for example, where the rate of returns is not inflation-adjusted. When returns are not inflation-adjusted, it means that the rate of returns cannot keep up with inflation. As a result, the value of your returns gets eroded over time.
2. More than one type of earning: Most traders aim to buy stocks at a low price and sell them when the price rises. The goal is to profit from the difference between the purchase price and the sale price. Long-term investors use a similar approach but they hold on to the shares for several years. Stocks tend to do well over the long run, which means shareholders could see significant capital appreciation. Some stocks—such as large-caps—also pay out regular dividends, which can provide shareholders with a steady income.
3. Buying and selling stocks is easy: Once you have logged in to your broker’s online trading platform, simply place your order. Name the stock you wish to buy or sell, mention the number of units to be traded, and add in other relevant details. You could also place orders over the phone or via chat. Besides, as there is no lock-in period, you can sell off shareholdings at any time. Thus, shares give much more liquidity than other investment tools like fixed deposits and pension plans.
Explore how technology has changed investing.
Why you need a stock broker
All stock market investments come with some element of risk. Efficient trading is all about how and when to invest in which stock. It needs round-the-clock monitoring of the market and in-depth research. This is where a stock broker comes to your aid. You can access the research materials and tools of your broker to improve your chances of stock market success.
To start trading in the stock market, you must open a demat account and a trading account. For this, you will need to approach a stock broker. Just ensure that the stock broker is registered with the Securities and Exchange Board of India (SEBI). Stock brokers in India are governed by the Securities Contracts (Regulation) Act, 1956, SEBI Act, 1992, and SEBI Rules and Regulations, 1992.
Stock brokers offer valuable advice on the best times to buy and sell stocks. Part of their job is to find the best prices for their clients. Explore stock broking and other stock market careers.
How is stock market investing different from investing in mutual funds?
When you invest in mutual funds, a fund manager decides how the money invested in the fund is allocated across different assets. This fund manager is an experienced investment professional. He or she will choose a bundle of stocks for the mutual fund to invest in depending on market conditions. The investment in these stocks is made according to a prespecified proportion.
A fund can also be passively managed, as in case of index funds. Here, the asset allocation of the fund mirrors the allocation of a benchmark index. Since these funds do not need any active management, their expense ratios are lower than those of actively managed funds. Read about different types of mutual funds.
However, mutual funds do not give the investor any active control over their own money. Most equity mutual funds have an exit load for the first year or a longer period. This discourages investors from withdrawing their money in the short run. But investing through a stock broker gives you complete control over your investment portfolio. Here, you are responsible for the return on your investment. Hence, a brokerage account is a sound investment choice if you want full control over your investment.
How to choose a stock broker
You can choose a stock broker by keeping in mind the following points:
1. Past performance: Research carefully to know all about the major stock brokers in India. There are plenty of trustworthy materials available online. Go through them and compare the past records of various stockbroking agencies. You can also study stock broker rankings based on past performance.
2. Selective feedback: Do your family members and friends invest in the stock market? Ask them for feedback. However, everyone’s feedback is based on their own investment style and perception. So, do not follow any advice blindly.
3. User reviews: Look for user reviews from previous clients of the stock broker you are looking to hire. Weigh the pros and cons of every review, and ensure that the reviews are genuine.
4. Brokerage charges: Every stock broker charges a commission. A high brokerage fee could eat into your earnings from every trade. But a stock broker that charges lower commissions might not offer an impressive range of services. So, it is advisable to compare the brokerage charges and other facilities before choosing a broker. Before selecting your broker, read the fine print and check for hidden costs.
5. Financial products: Consider the types of financial products at the broker’s disposal. Larger stock brokers have a wide array of financial products like bonds, options, and futures.
6. Trading platforms: Get to know all you can about the trading platform used by the broker. A good trading platform will offer you all the latest trading news. It will offer you several trading tools and provide detailed options. And you should be able to access the platform from your mobile phone or tablet.
Click here for more advice on choosing a stock broker.
What to expect from a stock broker
A stock broker is your trusted partner on your journey to wealth creation. Once you zero in on a broker, ensure that they can provide you with the following:
1. Customer-focused services: Brokers offer stock tips and recommendations. But are these suited to your financial needs? Look for user reviews that discuss this. While every individual trader and investor is different, reviews could help you to gauge the broker’s track record in this respect. Check the broker’s record of hits and misses in the recent past as well. You might find the numbers on their website. And before you commit to any broker, study the different brokerage and investment plans they have on offer. For instance, they may have tailored plans for beginners as well as more advanced options for seasoned traders.
2. Research and educational resources: A good brokerage house always seeks to educate its clients on different aspects of investment and trading. Check whether your broker offers quality resources for the same. It should share findings of its in-house research team on a regular basis. It must also alert investors about significant changes in the market and suggest alternative strategies. If you are new to the stock markets, you may need detailed guides explaining market terminology as well as trading strategies. Ensure that the broker provides educational resources that cater to your investment level.
3. Wider investment options: Life can become quite hectic if you need to use separate platforms for different kinds of trades. But not all brokers provide access to multiple asset classes. For instance, discount brokers may allow investments only in stocks and mutual funds. If you also wish to trade in derivatives and currencies, you may need a full-service broker instead. Some stock brokers also provide direct access to foreign stock exchanges, thus allowing you to invest internationally.
Types of stock brokers
All stock brokers in India are registered members of exchanges regulated by the Securities and Exchange Board of India (SEBI). There are two main types of stock brokers—full-service brokers and discount brokers. They differ mainly in terms of the services they offer.
Full-service brokers
A full-service broker provides research, trading, and advisory facilities with regard to stocks, commodities, currencies, mutual funds, and other asset classes. It also provides the facility to buy and sell stocks.
These brokers provide dedicated client relationship managers. They come with advice, customised support, portfolio management services, financial planning services, and services relating to wealth management.
Full-service brokers provide company reports and technical calls for investors and traders. Some of them provide banking and demat services as well. However, they charge a significantly higher fee compared to discount brokers.
Discount brokers
Advancements in technology have led to the rise of discount brokers who generally operate online. They offer cheap brokerage services for buying and selling stocks.
These brokers do not provide any additional services relating to market advice, financial planning, and tax planning. So, despite the low charges, these brokers could expose an investor to an increased risk as there is no guidance available. Besides, the trading segments that they provide may also be limited.
Discount brokers are preferred by clients who cannot afford to spend large amounts on fees and commissions. Seasoned traders who like to take investment decisions on their own might choose this type of broker.
If you are new to trading, you will need to find a foothold in the stock market. A full-service broker can help. They offer personalised investment services along with customised recommendations. All these together could support your trades.
The final take
Choosing a stock broker is the most important pre-investment decision for an investor. Before shopping for stock brokers in India, make sure to have a clear understanding of your investment approach. Look for a broker that will complement your style. For a smooth trading experience, you could open a 3-in-1 account with a reliable stock broker like Kotak Securities. Bundled options like the 3-in-1 account provide the convenience of demat, trading, and savings accounts in a single, integrated product.
