Investment decisions are strategic. They must be well-planned and driven by definite objectives. The stock market is one of the popular investment instruments. It allows one to buy or sell equity/shares. It is imperative to open a Demat account to trade in stocks.
A Demat account is an official account that is created with a stockbroker to trade in the share market. A prospective investor must open a Demat account with a registered stockbroker. There are several brokerage firms that levy the lowest brokerage charges in India. It is essential to know the various brokerage charges and fees before opening a trading account.
What are brokerage fees?
A brokerage fee is a fee that is charged by a brokerage firm for the various services that it offers to an investor. The services of a brokerage firm include investing data, premium research, additional trading platform and much more. Some brokerage firms do charge some extra charges such as maintenance fees and inactivity fees. The brokerage charges also depend upon the type of broker. There are two types of brokers namely, discount brokers and full-service brokers.
Associating with the right broker can make a big difference. It can considerably impact fees in the long term. Whether you have a fixed expense ratio or executing an intraday, one must know the exact brokerage fees charged by the stock brokerage firm.
Here are some common brokerage and investment fees:
- Trade commission: A trade commission is a stock trading fee charged by a stockbroker whenever an investor buys or sells the stock. Some stock brokerage firms do levy trade commissions for buying and selling other investment instruments.
- Mutual fund transaction fee: This is a type of brokerage fee charged when an investor buys or sells mutual funds.
- Expense ratio: This is an annual fee charged by index funds, mutual funds and exchange-traded funds. It is a percentage of investment in the fund.
- Sales load: A Sale load is the sale charge or commission that an investor has on selected mutual funds. It is paid to the broker for the selling of the fund.
- Management or advisory fee: It is a percentage paid by an investor to the stockbroker for its advisory and professional services.
The effect of investment and brokerage fees on returns
A brokerage fee adds up over time. Even a small amount of commission or fee levied will have a considerable impact on your returns. For instance, if your portfolio is up by 6% but you are paying brokerage and commission fees of 1.5% then, your returns will be only 4.5%. Moreover, it will keep adding up and make a difference in your return on investment.
Stock trading fee
A stock trading fee is charged by a stock brokerage firm for buying and selling stocks, ETFs and mutual funds. However, some stockbrokers do offer limited period offers and commission-free trading as a part of their promotion strategy. Under this, new or loyal clients can execute commission-free trade for a few months or a limited number of transactions.
Mutual fund transaction fee
Mutual funds are exempted from the brokerage commission. Nevertheless, brokerage firms do charge transaction fees for the buying and selling of mutual funds. The transaction fee may vary depending upon the brokerage firm. Every brokerage firm has a fixed percentage for transaction fees. One must check the same prior to opening a trading account.
The Bottom Line
Brokerage charges and commissions are an integral part of stock market trading. They can affect the returns on investment. Therefore, it is necessary to do comprehensive research and find the companies with the lowest brokerage charges in India to relish expected returns in the long term. An in-depth study and analysis of the stock brokerage firms and their services can enable one to unveil the factors that affect brokerage charges and make informed decisions.