Of late, there has been a marked shift in the investment pattern. People now prefer to invest in the share market instead of keeping money in the bank. However, you may not be familiar with the nuances required to invest in the share market. So, it’s advisable to contact brokers to look after your investment needs. They can guide you in a volatile market and help you fetch handsome returns on investment. All you have to do is pay brokerage to avail their services.
How do you define a broker?
A broker is a person or agency registered with the SEBI and is a member of any recognized stock exchange in India. There are discount brokers and full service brokers.
Discount brokers provide their services at a flat rate, which is lower than that charged a full service broker. So, they provide just the minimum trading facility to the investor. They can also provide services at a lower and usually flat fee for buying and selling stocks.
Full service brokers like Kotak Securities provide multiple financial services besides trading services. They provide services like savings and demat accounts, online trading, etc. They also advise investors on latest market trends. Investors looking for long-term investment would benefit from the services of such brokerage agencies.
You can select the type of broker depending on your requirement.
What is brokerage?
Put simply, brokerage is the fee charged by a broker for their services. It is charged on both buying and selling of stocks. This amount may vary between agencies and states. However, the BSE and NSE have specified an upper limit of 2.5% brokerage.
Additionally, the investor has to pay a service charge of 15% on the brokerage amount.
How to calculate brokerage?
Let’s look at a day trading transaction to understand how brokerage is calculated:
- A trader buys stocks of Company X at the rate of Rs 20 per share.
- The trader buys 1,000 units of that stock.
- Total expenditure will be 20×1000= Rs 20,000.
- Selling price of stocks of Company X at the end of the day is Rs 25 per share.
- There is a profit of Rs 5 per share.
- Total income by selling 1,000 units of the stock: 25×1000= Rs 25,000.
- Total profit earned: 25000-20000= Rs 5000.
Calculating brokerage on cost price:
- Total cost of buying shares: Rs 20,000
- Brokerage at 0.5% (assumed): Rs 100
- Service tax of 15%, levied by the regulating authorities, payable on the brokerage amount: Rs 15.
- Total cost of brokerage: 100+15 = Rs 115
Calculating brokerage on selling price:
- Total income from selling shares = Rs 25000
- Brokerage at 0.5% (assumed) =Rs 125
- Service tax of 15%, levied by the regulating authorities, payable on the brokerage amount: Rs 18.75
- Total cost of brokerage for selling: 125+ 18.75= Rs 143.75.
So, in case of day trading, the total expenditure in brokerage: 115+143.75 = Rs 258.75
The total profit after deducting brokerage: 5000-258.75 = Rs 4741.25.
In a nutshell
There’s no better way to grow your wealth than investing in the share market. But it’s advisable to hire a broker to know the places to pick for investment in a topsy-turvy market. Of course, you need to pay a brokerage fee to the broker. However, it shouldn’t affect your profits much. A broker can wipe out the risk factor and bring home hefty profits for you in exchange of a nominal fee.