How to Choose the Stockbroker?

Actual Question:

Which is better for a long-term investment, Geojit or Zerodha?

Answer:

Dear Friend!

You have raised a very important question which needs serious consideration. The question I presume revolves around the brokerage fees charged by the stock broker firms. I am sticking to cash delivery here, since I do not indulge in intra-day-trading and also because when you said long-term it should mean for taking delivery and holding the stocks for long.

I have an online trading account with Kotak Securities. The declared brokerage charges for cash delivery is 0.5%. But many times after seeing the big difference between the total value of securities I had purchased and the amount debited from my account, I had wondered whether I am being charged 5% and not 0.5%!

To be honest with you, so far I have not attempted to investigate the matter of brokerage charged by Kotak Securities thoroughly and completely. I strongly believe that they will charge only 0.50% that they have shown on their website.

Coming back your specific question of whether Geojit or Zerodha is better, presently Zerodha does not charge any fees on cash delivery. I believe that Geojit charges 0.30% for delivery based trading. Therefore obviously Zerodha is better, for every penny saved is two pennies earned. 

If you already have a trading account with any stockbroker, it is difficult to have another trading account as you must give a power of attorney (POA) to the stockbroker and giving two POAs creates conflicts. Zerodha had admitted to me that when two trading accounts are involved, I could only buy through Zerodha and any sale of securities can be effected only through my first broker, Kotak Securities.

An online trading account is a long term relationship and should not be based purely on freebies. 

Further and most importantly, a 0.50% or 0.30% or 0% is not going to have any significant impact on the long-term investments. What is important for making the important decision who is:

Size, Sponsor:

During great market crashes, many of the customers of stockbrokers, especially those indulging in margin trading become bankrupt and default. As a result, small brokerage firms’ financials get impacted severely and sometimes they also default. Therefore large firms sponsored by equally large organisations are preferable.

For example, Kotak Securities is sponsored by Kotak Mahindra Bank, might be in a position to honor its financial commitments.

Vintage:

Companies that have been in existence for a very, very long time are preferable.

Why?

Their long existence gives an indication that they had successfully weathered many severe financial storms in the past and may reasonably be expected to be resilient in the future.

Zerodha being a recent entrant does not have a long vintage.

Financial Means:

The stockbroker must have a strong, stable and reliable financial strength. You are entrusting your life’s savings with your stockbroker. There are two components of financial assets you are entrusting the broker with:

Hard cash you deposit in advance to buy stocks and lying with the broker. This is relatively a small sum though.

The value of stocks, which will surely amount millions in the case of serious investors over long periods of time.

In case the broker becomes bankrupt, your life’s savings are under serious risk.

Reliable Service:

• The software platform and other services should be reliable.
• The software should have minimum downtime.
• The broker  should provide reliable support through telephone, email and persoanl visits as and when required.

In conclusion, selecting a broker is not simply based on brokerage fees charged but a serious matter as the fate your hard earned savings and investments are in the hand of your stockbroker.

Thank you,

With Best Regards

Anand