Customers Get Lured By The “Free” Tag, But Nothing Is Free, Says B Gopkumar, Reliance Securities
Having seen the broking industry evolve from close quarters, B Gopkumar, executive director & CEO, Reliance Securities reckons that ultimately full-fledged broking services are the way forward as a large part of the investor population will require research and analytical tools. In a conversation with Clifford Alvares of BW Businessworld, Gopkumar opines on what investors should look for when choosing brokers
How do you see India’s capital markets developing?
India’s financial capital market has reached across the nation quite rapidly in recent years. More and more people are now realising the importance and strength of stock markets when it comes to wealth creation. Making wealth from capital market is no more an urban-centric phenomenon. Instead, people are turning investors and traders from all walks of life, irrespective of their geographies. And this trend is likely to rise going forward. The use of technology is helping facilitate fast transactions and executions of trades - breaking the geographical boundaries - making nearly all stock market-related transactions online.
Brokerage rates have come down, and traditional brokers are facing the heat from discount brokers. Is it not hurting your business?
In recent years as the stock markets are showing continuous strength, India’s brokerage industry is witnessing several intermediaries launching discount brokerages or even in some cases zero brokerages. It ideally means that such broking houses are charging less or no fees to investors for their trades. Whether they stand to what they propose is something one can debate on, but certainly this practice has created a buzz among investors that they can save brokerage charges on their trades.
But that seems to resonate with some DIY investors?
It is worth to note that till a few years ago, the brokerage fees were as high as 1-2 per cent. However, due to technological innovations and rising base of stock investors, the brokerage industry has managed to bring the costs substantially down. Full-service brokerages offer considerable advantages such as high-quality research, analytical tools, investment ease, portfolio services, and so on. So, it’s advisable to go for a broking house, which provides you with all you need from research to analytics to transactions as compared to a do-it-yourself broker.
What are your thoughts on how people can choose a broker, particularly when so many options are available?
If you consider yourself a day-trader, your investment horizon will be too small ranging from a few minutes to a few hours. Further, if you think you are quite informed and understand the nitty-gritty of the markets - especially the risks involved and research associated; you may choose to go for a broker who charges you flat or fewer fees.
What are your thoughts on brokerage charges as there as some brokers are even offering free brokerage on certain trades?
Customers tend to get very excited after seeing the “free” tag. But, one must understand that nothing comes free of costs in today’s world. Detailing the fine print is required for evaluation of lucrative schemes like zero-brokerage or Intraday Free. If not brokerage, a fee for SMS, CNT and platform services could be charged, which could be more than the brokerage which was to be levied. So, one needs to be careful when one signs up with such schemes. Moreover, there is an ongoing standard practice in the disguise of charging investors or traders a flat fee for each transaction. This could range from Rs 10 to Rs 20 per trade irrespective of the transaction volume.
But zero-based broking charges are attractive and will lure investors? Isn’t that a worry?
Given the minimal prevailing brokerages which marginally increases investors’ cost, one needs to ask a question to himself whether high and risk-adjusted returns are important or doing away with the brokerage fees? In other words, if risk-adjusted returns backed up with strong research base is reasonably higher, would you still be focusing and wasting your energy on how to reduce brokerage fees - which is quite marginal when it comes to returns.
So, you are saying that investors should focus on long-term wealth creation and not brokerage charges?
The ultimate aim has to be wealth creation from the capital market. And this can happen when your broking house not only helps you just as a facilitator for trades but actually provides you good research and advice about your investment decisions. Several of the well-established brokers in India have built not only robust technology platform for fast trade executions but also offer timely advice in forms of investment decisions, research reports and in-depth analysis of several events and their likely impact on the capital market. And in return, if they charge nominal fees, one should not be too much bothered about it. You should understand that paying a nominal fee for good advice and trades will have a positive impact on your investment.
