Online discount brokers wooing retail investors back to market

DSM

Well-Known Member
#1
Livemint, : Tue, May 14 2013. 12 58 AM IST

Mumbai: Indias brokerages are increasingly turning to online discounts to woo retail investors, wary since the 2008 crash, to the equity market by taking advantage of lower overheads to offer rates that are much lower than those charged by traditional houses for such traders.

While a traditional brick and mortar broker has to charge for rentals and employee expenses, online discounting broking firms save on such costs. Lower brokerage commission also encourages traders to capture small moves and helps them make money even amid low market volatility.

The 2008 market crash led to several investors, traders and even brokerages going out of business but those who kept costs to a minimum by relying more on online support and less on branches have been able to grow. Many of them dont employ extensive research teams as they dont offer advisory services.

One such firm, Zerodha Stock Broking Ltd, started operations in 2010 and offers broking services at a flat Rs.20 per transaction. Its 25,000 clients rack up about Rs.4,000 crore in average daily turnover.

Online discount broking gained popularity as a concept in the US in the late 1990s and early 2000s, and now dominates the business. It will do so in India as well, according to Zerodha founder and CEO Nithin Kamath.

We believe that what we have started is just the beginning and, five years from now, most of the brokers in India will follow suit, he said.

Traditional broking firms have started slashing rates but these are still not as low as those charged by the online ones.

Another broking firm that started off soon after the 2008 crash and added clients at a brisk pace is RKSV Securities Ltd, started by three traders with experience in the US markets who moved to India.

Being used to the kind of platforms, pricing models and service provided by American brokerages, we were shocked to see the Indian ones lagging (behind) in all three aspects, said Shrinivas Viswanath, one of the three promoters of RKSV.

Investors and traders were still reeling from the burns of that year (2008). Exchanges had also witnessed a sharp drop in traded volumes. We did our part to encourage equity investing by slashing the costs of trading and providing exceptional support via phone and email, he recalled.

The broking house generates an average traded turnover of Rs.2,500 crore per day. Encouraged by this, RKSV is planning to introduce discount broking in commodities trading in a few weeks.

Viswanath also expects the model to become ascendant as traditional brokers shifting online to cut costs.

They (traditional brokers) invest in relationship managers, who act as a medium between the trader and the market. We remove all middlemen. We live in an era where broadband internet is growing rapidly, Viswanath said.

Industry estimates put the number of Internet users in India at 125 million, although how many of them have genuinely high-speed access is unclear.

Rate war

Action Financial Services (India) Ltd, a publicly traded Mumbai-based broking firm, launched a rate war in December by cutting its fee to one paisa for every transaction. The brokerage has been adding clients at a brisk pace, besides fielding a surge in enquiries, since the cut.

The time since 2008 had been bad for all industries and more so for brokerage houses, as investors were wary of putting money in the stock market. We also suffered along with other brokerages. The number of accounts also fell from their peak before the market crash. Ever since we started with our new scheme, the trajectory has changed and new clients are being added daily, the brokerage said in an e-mail.

The clients have found the concept very (innovative) and there has been a stream of enquiries. Our last campaign got over in December 2012 but we get enquiries every day, it added.

Fees on delivery-based equity trades have come down to 0.1-0.3% from 0.75-0.5% over the past one year. For intra-day equity trades, the charges have come down from 0.05% levels a year-ago to about 0.03%. In the same period, trading commissions in the futures segment have fallen from 0.05% to 0.03%.

Key Indian stock indices have rallied amid strong global markets and are up at least 3% in the year so far. The 50-share Nifty of the National Stock Exchange of India ended last week at a 28-month high. However, retail investors are still staying away from the market. Between the two Indian depositories, there are just 16.2 million demat accounts.

The Indian brokerage industrys flat revenue pool at Rs.10,500 crore for FY12-13 compared with FY11-12 despite the strong growth in options volumes remained a concern. The cash volumes and futures continued to slide and were lower even in absolute numbers during this period compared with the previous fiscal, said rating agency Icra Ltds report in March.

The agency has, however, revised its outlook on Indian brokerages to stable from negative as broader retail participation shows signs of revival.

While traditional brokerages offer discounts to large clients with substantial transaction volumes, they charge retail traders more. This is the gap that online discount brokerages are trying to fill.

Every client at Zerodha gets the same dealbe it a person with Rs.1,000 or Rs.1 crore in his account. He gets access to all our tools of trade without any conditions on brokerage generated or the account size, said Kamath of Zerodha.

Online brokerages also let serious traders customise accounts. Zerodha allows users to develop their own trading systems or devise a rule-based entry and exit strategy that can be tested to ascertain the win-loss ratio.
 
#2
Most of the brokers claiming to be transparent do put brokerage calculator on their sites for new clients to
evaluate their transaction cost. This makes the task of selecting a broker a bit easy for us as far as cost of
transaction is concerned. Beside variance in upfront fee( brokerage fee) one needs to look at STT, Transaction
Charges and Clearing Charges being charged by brokers. One easy way to find is just compare the Service Tax
component in their brokerage calculator. Service tax being charged on Brokerage and Transaction charges will
give you a clear idea about transaction cost. Based on this for I found following –
-------------------------------------
*For Furure Segment Service Tax on 1 cr – Zerodha -60.5, RKSV – 29,Composite -56, Achievers- 48.20, Smart
Trade -29.66, VPS -30.9, Procon-48.20.
*For Option segment – Zerodha -988.8, RKSV -885, Composite – 927, Achievers -927 ,Smart Trade -883, VPS
-772.5 and Procon 865.2.
*For Cash intraday – Zerodha -60.5, RKSV -43, Composite -56,Achievers -43.26 , Smart Trade-43.26,
VPS-41.50 and Procon -64.89.
*For currency service tax component is, Zerodha -55, RKSV-19.76 , Composite -38, Smart Trade-20, VPS
-19.77 and Procon -38.93.
---------------------------------------
calculation -For example ,If I trade 1 cr a day in future segment( total turnover for month is 20-22
Cr) Achievers/Procon – My charges for one month are Rs 500(fix)+ service tax 61.8 + Turnover Charges 390+
service tax-48.20 (20X438.20) =8764. So total amount works out to be -500+61.8+8764 =Rs 9325.8/-.
Same calculation with Zerodha/Composite – Assuming 10 trades a day- (10x20x20) = 4000 Brokerage+ Service
Tax Rs 494.4 + turnover Charges 440 + service Tax 54.38(440+54.38)= 494.38, (20494.38) =9887.6. So total
cost is = 4000+494.4+9887.6 =Rs 14382/-
Calculating same with VPS/RKSV/SMART TRADE – 1700+ service Tax -210.2+turnover Charges -250+ service
tax30.9(280.920)=5618. So total amount that I spend is 1700+210.2+5618= 7528.( saving of Rs 1800 over
Achievers/Procon and saving of over Rs 7000 over Zerodha/Composite)

So on more detailed analysis I would say VPS,RKSV and Tradesmart are best at present.
VPS Comes out to be cheapest as they have good mix of plans
Tradesmart has their own DP services
RKSV good service and competitive pricing.
 
#3
Most of the brokers claiming to be transparent do put brokerage calculator on their sites for new clients to
evaluate their transaction cost. This makes the task of selecting a broker a bit easy for us as far as cost of
transaction is concerned. Beside variance in upfront fee( brokerage fee) one needs to look at STT, Transaction
Charges and Clearing Charges being charged by brokers. One easy way to find is just compare the Service Tax
component in their brokerage calculator. Service tax being charged on Brokerage and Transaction charges will
give you a clear idea about transaction cost. Based on this for I found following
-------------------------------------
*For Furure Segment Service Tax on 1 cr Zerodha -60.5, RKSV 29,Composite -56, Achievers- 48.20, Smart
Trade -29.66, VPS -30.9, Procon-48.20.
*For Option segment Zerodha -988.8, RKSV -885, Composite 927, Achievers -927 ,Smart Trade -883, VPS
-772.5 and Procon 865.2.
*For Cash intraday Zerodha -60.5, RKSV -43, Composite -56,Achievers -43.26 , Smart Trade-43.26,
VPS-41.50 and Procon -64.89.
*For currency service tax component is, Zerodha -55, RKSV-19.76 , Composite -38, Smart Trade-20, VPS
-19.77 and Procon -38.93.
---------------------------------------
calculation -For example ,If I trade 1 cr a day in future segment( total turnover for month is 20-22
Cr) Achievers/Procon My charges for one month are Rs 500(fix)+ service tax 61.8 + Turnover Charges 390+
service tax-48.20 (20X438.20) =8764. So total amount works out to be -500+61.8+8764 =Rs 9325.8/-.
Same calculation with Zerodha/Composite Assuming 10 trades a day- (10x20x20) = 4000 Brokerage+ Service
Tax Rs 494.4 + turnover Charges 440 + service Tax 54.38(440+54.38)= 494.38, (20494.38) =9887.6. So total
cost is = 4000+494.4+9887.6 =Rs 14382/-
Calculating same with VPS/RKSV/SMART TRADE 1700+ service Tax -210.2+turnover Charges -250+ service
tax30.9(280.920)=5618. So total amount that I spend is 1700+210.2+5618= 7528.( saving of Rs 1800 over
Achievers/Procon and saving of over Rs 7000 over Zerodha/Composite)

So on more detailed analysis I would say VPS,RKSV and Tradesmart are best at present.
VPS Comes out to be cheapest as they have good mix of plans
Tradesmart has their own DP services
RKSV good service and competitive pricing.


Thanks for detailed analysis.
Now as brokerage rates has fallen to low levels the next differentiating factor shall be trading Pf and free availability of charting s/w with data ;leverage and algo development and coding facilities.

Regards
 
#5
Really ?? I didn't mark that. Can you confirm ?
Yes, among all discount brokers only TSO aka VNS has their own DP services you can check with CDSL with name VNS finance and capital services.
You can ask them and confirm in there thread tradesmartonline.

Zerodha and RKSV Use DP service of IL&FS---AMC charge 400rs
TSO has own DP sevice VNS---AMC charge 300rs
VPS uses Globe Capital as DP---AMC Chrge 200rs

So inspite of having their own DP TSO is charging 300rs while VPS is beating them in this also by providing demat amc charge as 200rs.

Till sometime back TSO was the cheapest with there chrges but VPS has beaten them in plans charges and demat charges as well.
Dont know if someone else will come with better and cheaper plans than VPS and beat them also,May be 5rs plan.
I gave suggestion to TSO for improving plans etc but those ppl became silent after my suggestions.:lol:
 
#6
After all my digging about various brokers I have decided to open account with VPS (earlier i was thinking of TSO)
Why?
My 5 reasons:

1.VPS Plans and charges are cheaper compared to TSO
2.VPS has hybrid plans which is better than seperate plans of TSO as you dont have to worry about brokerage they have actually combined %brokerage+fixed trade+unlimited plans together.
3.DP Annual charges are less 200rs compared to VNS 300rs.
4.VPS providing online trade in commodity also,TSO no commodity trade online
5.VPS is providing SMS alerts,No sms alerts for new customers in TSO

consider these figures for the charges /cr
--------------------VPS(10rs)------------TSO(15rs)--------
1.Equity(Intra)------1658.878 rs--------1886.97---
2.Equity(Deliv.)------10408.878rs-------11436.97--
3.Futures------------813.372rs---------1013..37--
4.Options------------7904.972rs--------9127.45--
5.Curr.Futures-------212.248rs----------429.10--
6.Curr.Option--------5481.932rs---------6985.31--
-----------------------------------------------------

So anyone can see that VPS comes out to be cheaper plus you get additional advantages over TSO as i have mentioned earlier. So why would anyone want to go with TSO when we have better option
 
Last edited:
#7
@ Neoman
If we compare rates for equity trading ( Intraday & Delivery), trade smart online (0.007 & 0.07%) appears better than VPS (0.01 & 0.1%). Can you explain why you are saying VPS is better? I am a new member So please explain in detail Thanx
TSO charges as follows- Trade @ 0.7 paise.IntraDayTrade @ 0.007 perc, Futures: 0.007 perc,Delivery: 0.07 perc, Options: Rs 7 per lot
Account opening Rs. 500(Individual), Rs. 1000(Corporate)
Statutory Charges at the time of Account opening At actual
Demat Charges Rs. 100 per certificate and minimum Rs. 200 per request
Remat Charges Rs. 100 per certificate and minimum Rs. 200 per request
Annual Maintenance Charges Rs. 300 per year(Individual) , Rs. 800(Corporate)
Transaction (Debit) through Power of Attorney Rs. 15
Transaction (Credit) NIL
Transaction (Debit) through DIS - to CDSL DP Rs. 25 minimum or 0.02% subject to maximum of Rs. 50
Transaction (Debit) Inter Depository Rs. 25 minimum or 0.02% subject to maximum of Rs. 100
Inter settlement Transfer for NSDL in Pool Account NSDL Charges + Rs.12 minimum or 0.01% & maximum Rs. 50
Pledge Creation Rs. 200 per scrip
Pledge Creation Confirmation NIL
Pledge Closure Rs. 200 per scrip
Pledge Closure Confirmation NIL
Pledge Invocation Rs. 200 minimum or 0.01% whichever is higher
Failed Instruction Charges NIL
Transaction Statement other than Mandatory Statement (Extra) Rs. 20 per request
Other Charges Late Instruction 1% scrip value
There will be charge of Rs. 200 for dishonour of cheque.
• The Depository services are liable for discontinuation, if VNS Finance & Capital Services Ltd. is unable to recover charges
from the customer for any reason whatsoever. In such cases there will be a charge of Rs. 250 for resumption of services
and the services will be resumed after the minimum of three working days from the date of receipt of request at Central
Processing Office, Mumbai.
• If Demat Account is closed during the year, no pro-rata refund of Annual Service Charges will be given.
• For additional copy of Contract Notes or Statments, Rs. 5 per page and courier charges will be charged to the Client.
• For Physical Contract Note, Rs. 25 minimum for printing & delivery of Contract Note. The charges will be waived if
brokerage per segment for the day exceeds Rs. 25.
• Call N Trade would be charged Rs. 20 per order.
• Any service that is not indicated above will be charged separately as per the rates applicable from time to time though not
notified earlier.
 
#8
Most of the brokers claiming to be transparent do put brokerage calculator on their sites for new clients to
evaluate their transaction cost. This makes the task of selecting a broker a bit easy for us as far as cost of
transaction is concerned. Beside variance in upfront fee( brokerage fee) one needs to look at STT, Transaction
Charges and Clearing Charges being charged by brokers. One easy way to find is just compare the Service Tax
component in their brokerage calculator. Service tax being charged on Brokerage and Transaction charges will
give you a clear idea about transaction cost. Based on this for I found following –
-------------------------------------
*For Furure Segment Service Tax on 1 cr – Zerodha -60.5, RKSV – 29,Composite -56, Achievers- 48.20, Smart
Trade -29.66, VPS -30.9, Procon-48.20.
*For Option segment – Zerodha -988.8, RKSV -885, Composite – 927, Achievers -927 ,Smart Trade -883, VPS
-772.5 and Procon 865.2.
*For Cash intraday – Zerodha -60.5, RKSV -43, Composite -56,Achievers -43.26 , Smart Trade-43.26,
VPS-41.50 and Procon -64.89.
*For currency service tax component is, Zerodha -55, RKSV-19.76 , Composite -38, Smart Trade-20, VPS
-19.77 and Procon -38.93.
---------------------------------------
calculation -For example ,If I trade 1 cr a day in future segment( total turnover for month is 20-22
Cr) Achievers/Procon – My charges for one month are Rs 500(fix)+ service tax 61.8 + Turnover Charges 390+
service tax-48.20 (20X438.20) =8764. So total amount works out to be -500+61.8+8764 =Rs 9325.8/-.
Same calculation with Zerodha/Composite – Assuming 10 trades a day- (10x20x20) = 4000 Brokerage+ Service
Tax Rs 494.4 + turnover Charges 440 + service Tax 54.38(440+54.38)= 494.38, (20�494.38) =9887.6. So total
cost is = 4000+494.4+9887.6 =Rs 14382/-
Calculating same with VPS/RKSV/SMART TRADE – 1700+ service Tax -210.2+turnover Charges -250+ service
tax30.9(280.9�20)=5618. So total amount that I spend is 1700+210.2+5618= 7528.( saving of Rs 1800 over
Achievers/Procon and saving of over Rs 7000 over Zerodha/Composite)

So on more detailed analysis I would say VPS,RKSV and Tradesmart are best at present.
VPS Comes out to be cheapest as they have good mix of plans
Tradesmart has their own DP services
RKSV good service and competitive pricing.
VPS Rest in Peace ....Trade Smart Online is the best :thumb:
 
#9
This is a lot of calculation! I am just beginning to understand the trading world and looking for the right broker to get my account opened. As a trader what are the things you would look at when choosing a broker? How has online trading changed the face of trading? What advantages and disadvantages do you think does online trading offers?
 

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