Securities such as stocks are traded on stock exchanges. In India, the major stock exchanges are National Stock Exchange(NSE ), Bombay Stock Exchange(BSE), etc. To be able to buy or sell stocks on these exchanges, you need an intermediary called the stockbroker in India or sharemarket brokers, who will then execute the trades on behalf of you.
What are Stockbrokers in India?
As mentioned, a Stockbroker in India is essentially a middleman who has the authority to buy and sell stocks and other securities from a stock exchange on the investor’s behalf.
Stocks are traded through exchanges. However, an investor can not directly trade through a stock exchange. To be able to buy or sell a stock through the exchanges, you require an intermediary to assist you with the transaction. This intermediary can be a person or a company with the necessary authorization to buy and sell the securities on behalf of an investor. This entity is known as a Stockbroker. Stockbrokers or Share Market brokers in India can be stockbroking firms or can also be an individual. Stock brokers usually charge a commission or a fee.
Role of a Stockbroker
The primary role of any stock broker in India or share market broker is to buy and sell shares on behalf of an investor (client). But they also play other important roles, such as providing the investor with valuable insights to help him or her make the correct investment decision. Stockbrokers also provide many valuable services, such as
1> Stockbrokers give valuable advice on buying and selling securities such as stocks. Since they are well versed in the markets, they are well equipped to advise the client on which stocks to buy or sell or when to buy or sell them. They intensively research the securities before making these recommendations.
2> Stockbrokers and sub-brokers also act as record keepers; they keep records of all of the transactions, statements, and other important information.
3> Stockbrokers also manage the investor’s investment portfolio and also keep the investor updated with the updates regarding their portfolios and also assist in clearing out any doubts or answering any questions the investor may have.
4> Stockbrokers also keep the investor informed about any new investment opportunities that might come up in the Stock Markets.
5> Stockbrokers also help investor adjust their investment strategies to the changing market conditions.
Types of Stockbroker
1> Full-Service Brokers: A full-service broker, provides multiple services to an investor. Most full-service brokers have physical offices in Major cities where the client can visit. These brokers provide a bespoke experience through customized brokerage plans and other services for investors with different interests depending upon the expertise of the client. Clients with large holdings also get dedicated service managers to handle the portfolio.
Full-service brokers also educate their clients through various educational materials and financial advice, for example, when they offer a client a stock recommendation based on their brokerage plan, they also educate their client on the risks associated with their recommendation. These stock brokers have an in-house market research team to regularly compile market research data. The clients can access these reports and get research-backed insights. They also provide real-time market news and data via SMS. The commission charged by them is slightly on the upside at 0.3% to 0.5%, but it is justifiable considering the services offered.
2> Discount Brokers: Discount brokers unlike full-service brokers offer only the basic services of carrying out trades on behalf of their clients and do not offer any additional service. This is why they charge a low commission.
Since they provide only transactional services, they keep the whole setup online, not physical; this helps them keep their operational costs low. These brokers are suitable for casual investors or seasoned investors wanting to keep the cost of trading low. But due to a lack of insights available, these brokers may not be such advantageous.
3> Robo Advisers: These are automated entities or digital platforms to provide online financial planning services. They rely on algorithms to give financial advice and require minimum human intervention and supervision. The client fills out a survey providing the necessary information about his financial goals, health, and other relevant information. The Robo-advisor uses this, computes, and gives out investment advice.
These are even cheaper than the discount brokers. Rob-advisers may charge an annual fee of 0.2% to 0.5% of the client’s account balance. They require a low opening balance to open an account. Since they are online, you can reach out to them at any point of the day from anywhere through the internet. However, with Robo-advisors, your investment options may be limited as they only deal in mutual funds.
There is also a need for you to understand Sub-brokers. Sub brokers are an entity appointed by the broker to act on its behalf. Sub brokers are not members of the stock exchange. Sub-brokers also need to register with SEBI mandatorily.
How to Choose a Stockbroker?
Selecting a stock broker can be a tedious and exhaustive task, which may require considerable time to research. There are a few factors that you should keep in mind while making your decision to select a stockbroker in India.
1. Reputation of the broker
The foremost step would be to check the broker’s background and reputation. Is the broker relatively new, or is it an established one? You can check their reviews, and complaints and also survey their existing customers regarding their experience with the platform. If they have an app, you can download it and check to see if it’s friendly enough for you.
2. Brokerage and other charges
To facilitate the transaction between the investor, the stock brokers usually charge a commission; each broker charges differently based on the service they provide. You should thoroughly review the service which you require and compare the prices with other similar brokers for the same services offered.
3. Customer Service
As a new investor, you would want some assistance with the whole process; you should always keep in mind that good customer service and ease up your whole process of investing through a stock broker. The easiest way to check that would be to call their customer service and talk to them via their helpline. The longer it takes to get assistance the lesser you should go for that stockbroker.
4. Trading Platform
This happens to be one of the defining factors in selecting a stockbroker. You should always inspect if you find the platform to be friendly enough. Check for the latency, user interface, etc. review their mobile app the same way.
Stock broker is an essential part of your investing journey, without which you can not invest at all. There are different stockbrokers with different purposes and services. Keeping in mind the factors mentioned above you can easily select a broker, who can assist you in your investments and trading.