In addition to brokerage, STT and service tax, trading/ investing in stocks also attracts Depository Participant (DP charges).
In fact, the truth is that instead of focusing on brokerage investors should focus on all these other charges which are far more substantial and larger than brokerage. Further, the DP charges will never appear in the contract note that you will receive from your stock broker. They will only appear in your ledger statement with the stock broker which most investors hardly ever check.
This should also explain how some brokers charge Zero Brokerage and yet remain in business.
If you include the DP charges and taxes on the transaction, it is actually more than the brokerage you paid on this trade (i.e. Rs. 69.68 + Rs. 34.50 > Rs 94.9).
Of course taxes are not negotiable but just like brokerage, DP charges can be reduced significantly and the trick here is to know your amount and number of trades in a year. The Image below shows the various DP Plans offered by stocks brokers (we took this image from the Motilal Oswal – since most of our clients use their service):
In the scheme options above, most people choose scheme A because it is cheap (only Rs. 100 p.a.). But you will be paying a minimum of Rs. 34.50 (i.e. Rs. 30 + taxes) or 0.025% of transaction value if such amount is higher / on every single trade as DP Charges.
If you choose Scheme B**, your DP Charges will be zero irrespective of the number of trades you execute each year. Of course the AMC for scheme B is effectively Rs. 800 (upfront). So here is the math:
If you execute more than 24 trades in a year (i.e. Rs. 34.50 * 24 = 828), you should actually be opting for unlimited trades with zero DP Charges (in Scheme B) and pay Rs. 800 upfront.
The above applies and is true for all major stock brokers with minor adjustment in values. So the difference really is for frequent and infrequent traders. If you execute more than 24 trades in a year, you should consider Scheme B.
**(or any other AMC Scheme – Read point 1 in the image),
About the Author
Rajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.Follow @SanaSecurities