Which One is Best For You: Discount Brokers Vs Traditional Brokers?

More and more people are getting aware of investing in India. More than 1.42 crore people have ventured into stock investing in just the last year. That’s a big number and still counting.

More Indians are getting active in the stock market. But, many of them still have questions like, ”Is it safe to invest in the stock market?” or “What if I lose all my money” or “What broker should I choose?”

These are the most common types of questions asked by people on online forums, blog comments, Youtube comments, and Quora.
My most common response would be, “Do your research before investing your money”.

This blog post will cater to the 3rd question: Which stock broker should I choose? Of course, I am only talking digital here.

There are many brokers in the market, and choosing the right one is important. By the end of this post, you should be able to differentiate and make a choice.

There are two categories of stockbrokers:

• Traditional (Full service) brokers – HDFC Securities, ICICI Direct
• Discount Brokers – Zerodha, Groww

What is a Traditional/Full-service broker?

A full-service broker is a licensed broker offering services such as portfolio management, wealth management, research advisory, etc. These are traditional brokers that perform their operations both online and offline. They have branches and Relationship managers for their customers.

Full-service brokers perform fundamental analysis of stocks and publish reports on the stock market trends, market forecasts, and company case studies.

Full-service brokers charge higher brokerage fees than discount brokers. Individuals with high volume trades prefer such brokers. For example, ICICIDirect charges 0.75% brokerage( included in the I-Saver Plan) for investors with a trade turnover of 10 lakhs in a calendar year. But, the brokerage decreases to 0.25% when the trade turnover is above 5 crores in a calendar year.

Here are some advantages & disadvantages of Traditional brokers:

Advantages	Disadvantages
Online & offline services are available.	Higher brokerage.
Expert advice, research reports, portfolio management, etc.	High transaction fee, suitable for high volume traders.
Dedicated Relationship Managers & Branches.

Understanding Discount Brokers

Discount brokers offer low, and fixed brokerage plans irrespective of any trade turnover value. The most popular example here is Zerodha that charges only 20 rupees/order for equity intraday trading. It does not matter whether you are trading for 5,000 or 50 lakhs, the brokerage would stay the same.

Discount brokers do not provide extra services such as fundamental analysis, research papers, portfolio management or wealth management. A discount broking firm provides you with an online platform for stock investing at a lower fee. There are no branches or relationship managers, the discount brokers keep costs low.

Advantages	Disadvantages
Low brokerage	No Market reports, expert advice, portfolio management.
Low Transaction fee, ideal for retail investors starting out in the stock market arena	No branches, no relationship manager support.
Excellent Online presence & services.

Which one should you choose?

Well, it depends. You need to check what services you need from your stockbroker.
Also, you must answer with the following questions:

• What will be your trade volume? High or low?
• Will you invest in stocks or stick to mutual funds?
• Do you need expert support while trading in stocks?
• Do you prefer to have your trading done offline?

Apart from this here are some of the key things that you need to consider:

• If the excess fees are going to prey on your mind, then go for the discount broker.
• Investing in the stock market, especially trading can lead to losses as well.
• If you are a novice, then you should value research and advice more. In such cases, you can use a full-service broker to get recommendations and reviews. Money spent on brokerage is better than losses.
• There is one other feature with full service brokers like ICICI and HDFC , they can connect your savings account directly to your brookerage account. This can be either a boon and a shortcoming, depending on your view. It allows you to seamlessly move money in to the stock market, at the same time it might lead to issues if you are not in control.

The explanation and questions can go on….!

Here are a few basic questions to ask yourself to simplify:

Can you manage stock investing on your own?

Are you comfortable with investing/trading online?

Do you follow market updates, track many stocks regularly?* If needed can you reliably do fundamental analysis?

If the answer here is yes! Then you can go ahead with a discount broker and start your investing journey.

However, if the answer is NO to any of the above-mentioned questions, then you might consider a traditional broker under the following conditions:

You need expert advice while choosing stocks/mutual funds.

You are going to trade in high volumes.

You prefer to trade offline.

You want to meet your portfolio manager in person.

If you are comfortable with the above-mentioned points then you should go ahead with a full-service broker.

Hopefully, this post simplified some of the things around choosing a broker. Either way make sure you read the terms and conditions of the broker and are aware of the rules.

You can also read about the ten fundamentals and the very basics here.