India Shining!!! And if you want to shine with it you need to invest in Indian Stock Market. And the very first thing you need is Demat Account. But given that online trading has become very competitive, brokers are offering several options—brokerages that decline as volumes soar, waiver of account opening charges, access to research reports, and the facility of transacting in financial instruments through the trading website.
So whom should you choose? The answer depends on a host of Questions.
Why it is difficult to compare Brokerage Houses and their Demat plans?
As I write there are more than 100 small & big online brokerage houses each with 5-10 plans & platforms targeting different customer segments. Each plan has different brokerage & cost structure. Also it’s difficult to find details of each plan on the respective websites. So on a conservative estimate all in all it would be like comparing 500 plans for opening a demat account. Moreover these plans like the mobile tariffs which keep on changing every week.
Which online broker is best?
This question pops up time and again. But then it has no definite answer. It depends on what attribute you value the most, also it’s the function of what you actually do in stock market – are you a trader or investor, do you trade in BTST (Buy Today Sell Tomorrow) / Cash Deliveries/ Margin Money/ Future & options, the amount you use in each transaction and many others. So all in all you need to first find out which category you fall in and then find the right product for you.
Which Category you belong to?
First write down what kind of investor you are. You can ask yourself the following Questions for the same.
Are you a short term trader or long term investor?
If you are short term trader you need an account which has very low brokerage rates while for long term investors’ initial brokerage cost does not matter a lot.
How much money you would put each month in the market?
If you are a High net Customer almost all the brokerage house would offer a customized plan for you. But for the rest of us there are different plans depending on how much money we put in each month. Usually more money you invest the lower is the transaction cost.
What products you looking to trade in? (Cash Deliveries/ Margin Money Trades/ Future/ Options/ Mutual Funds Only/ IPO / Bonds etc)
Some people get a demat account just to invest in Mutual Funds. Though it sounds ridiculous but with the kind of financial illiteracy & miss selling we have in India, it’s not unheard of. Most of small investors only do transactions in Cash Deliveries or Mutual Funds. It doesn’t make sense to get demat account for Mutual Fund transactions only. If you would only invest in Cash based segments compare the cost of different plans only based on cash deliveries. It makes no sense for you to look at F&O transaction rates.
It’s also sensible to have more than one demat account to trade in different products. It may help you save cost. This brings more complication but its individual decision if he wants lower cost or peace of mind.
What’s your average transaction size?
I have many friends who like to put money in one go while there are others who like to invest regularly following the SIP (Systematic Investment Plan) way. If you have a small transaction size you need to carefully see all the plans. Like in case of ICICI Direct you need to pay a minimum brokerage of Rs. 25 for each transaction. So if you but shares worth Rs 500 you would be paying 5% brokerage which is much more than just expensive. In other cases like Reliance Money you pay just a percentage of your transaction cost say 0.5% of your transaction amount. So for Rs 500 transaction you pay just Rs. 2.5.
Moreover all brokerage houses have a minimum trade value amount, so you cannot place order less than that amount. ICICI has minimum trade value amount of Rs 500 while for Reliance Money its Rs 600. You need to specifically ask agents about this before finalizing any plan.
Do you need high speed real time trading software or normal web based trading terminal?
Are you the pro types who watch prices tick every second! If yes you necessarily require high end software based terminal on your machine. On the other end if you are small time investor you really don’t care if you miss a few ticks. So normal web based terminal is good enough. Usually software based terminal costs much more.
Above 5 questions can help you in getting your broad category. Then you can further narrow down based on your requirements and preferences.
What’s your preference?
You want to go for a bank based brokerage like ICICI Direct or independent broker like Reliance Money?
I don’t find much difference in either a bank based brokerage or independent broker. It’s totally a personal decision. Each has its own advantage & disadvantages.
The ease and time taken for money transfer between the bank account & the demat account?
All the independent brokers support many banks while bank based brokers have integrated accounts in respective banks. So transfer of money is easier in case of bank based brokers like ICICI. For e.g. In case of Reliance money the money transfer to the RMoney account is instant but while doing the opposite it takes 2 working days which can be a pain. There are brokers where money transfers happen instantly or the next day. Have a look at this feature if liquidity is a concern for you.
For BTST and F&O traders square off timing can be very important.
The square off timing varies from broker to broker. The closer it is to the closing time of the exchange the better it is. So have a look at this if you don’t want to miss the last minute volatility.
Customer Care and Support
Demat account is relatively a complex service. If you are a newbie then you might require customer support frequently. Please read online reviews or talk to your friends to know about customer care & after sales service. On having a look on www.mouthshut.com I find Kotak Securities the most customer friendly as they are trying to address any complaints on the forum. While on the other hand you have Reliance Money which charges you for every call to customer care.
Mode of Order Placement – Online, Phone, Kiosks etc
There would be times when you cannot trade online due to broadband problems, laptop crash, etc. If you are the one who want to trade even then you need to have a plan which has option of call & trade or go to their offices or kiosks to trade. These services are generally expensive than online transaction but worth it for odd situations.
I have personally found Demat accounts generally have a lot of hidden charges which you would not be aware of. You need to look at each plan document and see if there are any charges. Don’t take sales person words for granted until the company gives it in written. As I wrote Reliance money even charges to call their customer care which is ridiculous but then they do it. Be careful!!!
Once you are able to list all these requirements you can find the best plans for you from different brokerage houses & finalize the one which best suits you. Last but not the least keep a photocopy of all the documents you sign. It’s your money and you need to be careful with it.
11 thoughts on “Which is the best Demat Account?”
Is there brokerage for investing in mutual funds?
No there is No brokerage for investing in Mutual funds until you buy it in demat form from exchange.
Very userful article Amit.
We always need to keep an eye on hidden charges as you mentioned
Sirji, can i open demat account on my daughter,s name having pan card but their age is 9 & 13 years respectively.
Also suggest which is better Demat account.
Thanks for the great article Amit,
It’s really helpful for the beginners. I’m also new to online trading & have a demat account with Geojit BNP Paribas.
Recently I came to know about NSE mobile app which allows to do trading right from your phone with live stock updates which is far better than Geojit Flip mobile app.
I have installed NSE mobile app on my android phone.
Market data works fine but when I go to the trade option, It asks for “MEMBER ID” & “USER ID”
I wonder where do I get this Member ID & User ID from.
I called the NSE toll free number but they themselves are not aware of this.
Any Help would be highly appreciated.
Thanks in advance.
Thanks for the info. Atleast I know my requirements now
Good to know it was useful. So which Demat account have you opted for?
please recommend to me an online brokerage – I want to invest 2-3k every month in small cap stocks and remain invested for 3-5 years. volume and number of trades will be low.
You would need to pick up basic demat account offered by brokers. Just look that you have low fixed cost and there is no fixed sum per transaction.
I would try to compare some basic demat accounts in my future post.
This has helped me in selecting the right Demat account. Keep it up!