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
