Stock Brokers in India – How to choose the right one for yourself?

India suffers from poor growth, high inflation, high current account deficit, high fiscal deficit and of course a constantly weakening rupee. The gold prices have burst their bubble, and silver is no good either. The banks and post office PPFs and fixed deposits are hardly giving 7 percent interest per annum. So, how to beat inflation in such a dismal scenario? How to make sure the money earned by the sweat of your brow does not lose its sheen? The answer to that lies in leveraging the benefits of the stock market.

The first question that must come to your mind is – What is a stock market? Whom to buy the stocks from? After all, stocks are not road side hamburgers sold by McDonald’s. It surely isn’t rocket science. Well, you know what, they are just like hamburgers. A stock market is a place where you can buy or sell different financial instruments. One example would be Bombay Stock Exchange (BSE), I expect you must have heard the name. To facilitate the buy/sell process, you need the help of Stock brokerages. The problem begins once you know that you need a stock broker. There are many of them, but only a couple of them might be relevant. Which one to choose? You will obviously ask for people who have used both of them. To narrow down to the right broker, you need to asses a string of factors before you decide which broker to buy stocks from.

But before deep diving into it, I would ask you to write the amount you are ready to invest in the market on a paper. Remember this amount should be the “Risk Capital”, which, if you lose should not affect your current life-style. You should keep in mind that the market is volatile and there is a probability that you might end up losing all or majority of this money.

Based on the money at your disposal, you can opt for one of these two categories of brokers:

1. Full Service Broker: Big players (in the range of Rs 1 million) go to such brokers. These brokers give their customers one-to-one investment advice on buying stocks, which is backed by an extensive research team, usually in-house. Like all good things in the world, their services don’t come free and they charge a hefty amount. Examples are RK Global, SMC etc.

2. Discount Brokers: They charge reduced commissions compared to their counterparts and do not provide one-to-one advice. Nowadays, however, they too are backed up by their own research team which offers quality information on their trading platform.

The various parameters that one needs to keep in mind while choosing a discount broker:

1. Account Minimum: Most brokers posit that you start with a minimum balance, which might range from as low as Rs 0 to as high as Rs 1,00,000. Like most people with moderate IQ, you must have already guessed it’s better to choose a broker with least deposit.

2. Research: A little knowledge is never wasted, so right information about the right market mobilization at the right time is worth gold ringlets. So while you must do some homework research yourself, it is always advisable to take the help of a broker with excellent reputation and backed up by impeccable research. Some brokers have excellent research teams, both in-house and third party.

3. Cash or Margin Account: There are two broad subdivisions of brokerage accounts: Cash and Margin. While cash account settles the transactions on a cash basis, the Margin account lends the customer cash to purchase securities. The loan in the account is collateralized by securities and cash. New investors should not venture into Margin accounts where risks of clocking losses are higher, which will act as a dampener to his/her investment exuberance.

4. Deposit & Withdrawal: While depositing money into brokerage accounts is relatively easy, the withdrawal is not that smooth. You must have the facility of withdrawal of money as and when you please. Some brokers charge fees for the withdrawal. You must have a holistic understanding of the various fees involved in the transactions.

5. Fees & Commissions: Hidden prices are the red herrings to look out for, as it is one of the most important factors affecting your decision. You should understand the fee structure and the level of activity that may be required to qualify for the lowest commissions. You should also acquire in-depth knowledge about the fee structure.

6. Investment Products: You should watch out for other vehicles of investment offered by the stock broker. These include Options, Bonds, CDs, Mutual Funds, etc.

7. Customer Service: You can easily get frustrated with the broker in times of need and when you have questions which need answers. In general the presales and post sales customer service is different and one must check the customer service.

8. Trading platform: All the trades are communicated and executed via the trading platform. The execution speed is a thing to note. A cheap broker might not provide high standards of service. Slow responding platforms affect the P&L and it’s not worth to use an unstable trading platform.

9. Review and Ratings: Best thing is to learn and then learn some more. Knowledge is never wasted. You can learn from web resources, individual trader experiences. Check out the Review of Stock Brokers. You must also look at the user review and comments to get a subjective opinion.