Discount broker vs full service broker

Choosing the right type of broker is an important decision for an investor. Picking the wrong kind may lead to considerable differences in investing experience, and also on the price you pay to invest.

Be it buying or selling, regardless of what an investor is trying to do on the stock market, the intervention of a broker is conventional.

The global stock market is valued at $100 trillion, and the market size is bound to increase. It only means that more and more people across the globe want a piece of the pie.

A broker is a registered member of stock exchanges (BSE and NSE) which are regulated by the Securities and Exchange Board of India (SEBI). They act as the middleman between the market and the investor.

The retail brokerage business in India is broken down into two categories – full-service brokers and discount brokers.

The two categories have many distinctions, and picking the right one depending on your skill level, and drive to build up more capital is critical.

Picking the wrong type could mean paying extra for the same services.

These parameters beg the question – Should you opt for the cheaper, straightforward broker or go with the pricier, more featureful option?

Understanding your options thoroughly is the best way to decide as to which kind of brokerage is best suited for you.

To help you out, this article covers all the details comparing Discount Broker vs Full-Service Broker – like the research tools provided, minimum balance requirements, commissions and other fees charged by both categories of brokerages that will help you contrast between the two.

Who Are Discount Brokers?

Discount brokers are businesses that enable their clients to buy and sell securities but does not supply any research, planning or alternative investment services.

They became more significant than other brokerage houses with the rise in use of the internet. Their whole business model is based on providing only the necessary trading facilities at the least possible cost.

There is no particular advisory division in discount brokerages. Almost all of the discount brokers provide only execution services and don’t have any relationship management as such.

However, some of them provide online resources to help entrants learn the tricks of the trade.

Their main aim is to cater to individual clients, whose needs are specific and straightforward.

The brokerage charges are low. They offer to trade in derivatives, equity, currencies, and commodities at as less as Rs. 10 per trade.

They make money by catering to large volumes of clients and compete with one another purely based on price and reliability of service.

Discount brokerages have established themselves well in recent years, and are quickly catching up with full-service brokers in terms of market share.

The most prominent discount brokers are:

Who Are Full-service Brokers?

Full-Service brokers keep themselves aligned with the more traditional way of trading – they provide both advisory and trading facilities in stocks, annuities, bonds, derivatives, commodities, and currencies.

Furthermore, they also provide specific options for research and advice, as well as tax planning and retirement planning services. Some even offer insurance. It makes them much more versatile than discount brokers.

Some of the full-service brokers are bank subsidiaries. Hence, brokerages like ICICI Direct and HDFC Securities offer 3-in-1 accounts (savings account + Demat account + online trading account) to their clients.

Such features make frequently transacting a more pleasant experience.

Full-service brokers charge considerably higher brokerage fees. They make money mostly through the commissions they charge their clients.

It implies that they do not think of how well you trade, but how often you trade. They offer sound advice, but it is essential not to get carried away all the time.

One advantage an investor has with these brokers is that they have offices all across the country, and can walk in for any advice or queries.

Owing to this fact, veteran traders always tend to trust full-service brokerages more than discount traders.

Some of the better know brokerage houses in India include:

To help you ease into making an informed decision, here are the differences between full-service and discount brokers based on different criteria.         

Discount Broker vs Full Service Broker: The Differences

Service:

Discount brokers only provide a trading platform. If you opt for a discount brokerage, you’ll miss out on the research reports, annual reports, stock reviews, free stock tips, IPO reports and daily market reviews that Full-service brokers provide.

Full-Service brokers additionally provide advisory for mutual funds, shares, bonds, currencies, commodities, etc. They also charge a margin fee, unlike discount brokers.

Both categories of brokerages supply their users with the software on all platforms to make trading more straightforward.

Windows and macOS have their proprietary desktop software, there are professionally designed apps for mobile phones, and trading can also be carried out right from the brokerage website.

These features make for an effortless, interactive trading experience, and investors do not have to learn new software to trade on the go.

Brokerage Charges:

The charges are as less as Rs. 10 per trade, irrespective of the order value for Discount brokers.

To understand the fees standard brokerage charges,  let us take Zerodha as an example:

Account Opening Charges Rs. 300
Demat Account Opening Charges Rs. 100
Demat Account AMC Rs. 300 (upfront)

Typically, there are no trading annual maintenance charges.

TRADING SEGMENT BROKERAGE CHARGES
Equity Delivery  No charges (Free and Unlimited)
Equity Intraday 0.01%, or Rs. 20 per trade (whichever is lower)
Equity Future 0.01%, or Rs. 20 per trade (whichever is lower)
Equity Options 0.01%, or Rs. 20 per trade (whichever is lower)
Currency Futures 0.01%, or Rs. 20 per trade (whichever is lower)
Currency Options 0.01%, or Rs. 20 per trade (whichever is lower)
Commodity 0.01%, or Rs. 20 per trade (whichever is lower)

Most discount brokers also have a call and trade option, for which they usually charge an extra fee on a per-call basis.

Rs. 20 is charged additionally for every MIS/BO/CO order that the investor does not square off.

Additional Demat account charges include:

TRANSACTION CHARGES
Stamp Charges (upfront) Rs. 50
Annual Maintenance Charges: For IndividualsCorporates   Rs. 300 per year, plus GST Rs. 1000 per year, plus GST
Off Market Trades ReceiveDebit   NIL 0.03% or Rs. 25, whichever is higher
Demat Per Certificate Rs. 150
Remat Per ISIN Rs. 150 per certificate plus CDSL charges
Courier charges per request Rs. 100
Cheque Bounce charges Rs. 350 per cheque

Full-Service brokers, on the other hand, charge an average daily brokerage ranging from 0.3% to 0.5%. Usually, a full-service brokerage has different plans to match the temperaments of investors.

For instance, ICICI Securities proffers three brokerage plans.

  1. I-Secure Plan (Flat Brokerage): This is the best plan for investors looking for fixed brokerage charges. Investors are charged a fixed percentage, irrespective of the turnover value.
  2. I-Saver Plan (Variable Brokerage): Investors are charged based on the volume they trade – high brokerage for low volumes and low brokerage for high volume traders. Suitable for traders that buy in large quantities.
  3. ICICIdirect Prime Plan: There are three sublets of this plan (Rs. 900, Rs. 4500 and Rs. 9500), all of which offer an upfront reduction in brokerage across all equities and derivatives.

For retail customers and corporates, basic charges are:

PARTICULARS CHARGES
Account Opening Charges None
Annual Maintenance Charges Rs. 600/Rs. 500 for customers receiving statements via email. (No fees for the first year)
Buy Off Market Charges NIL
Sell Off Market Charges Rs. 500 Maximum
Instruction submitted (Internet/Call centre/Branches) 0.04% (Minimum Rs. 25, Maximum Rs. 25000)

Brokerage Charges:

I-SAVER PLAN
TOTAL ELIGIBLE TURNOVER BROKERAGE BROKERAGE POST-INTRADAY SQUARE OFF
Above Rs. 5 Crores 0.25% 0.125%
Rs. 2 Crores to 5 Crores 0.30% 0.150%
Rs. 1 Crore to 2 Crores 0.35% 0.175%
Rs. 50 Lakhs to 1 Crore 0.45% 0.225%
Rs. 25 Lakhs to 50 Lakhs 0.55% 0.275%
Rs. 10 Lakhs to 25 Lakhs 0.70% 0.350%
Less than 10 Lakhs 0.75% 0.375%
I-SECURE PLAN
TOTAL ELIGIBLE TURNOVER BROKERAGE BROKERAGE POST-INTRADAY SQUARE OFF
Irrespective of turnover 0.55% 0.275%
ICICIdirect Prime Plan
PRIME PLAN BROKERAGE SPECIAL MTF INTEREST RATES/ LPC INSTANT PAYOUT LIMIT
CASH MARGIN/FUTURES OPTIONS/LOT % PER DAY
900 0.25 0.025 35 0.045 10 Lakh
4500 0.18 0.018 25 0.040 25 Lakh
9500 0.15 0.015 20 0.034 1 Crore

There are no charges for Currency Futures or Options in this plan.

Full-service brokerages also charge for call and trade, which is usually Rs.25 per call.

The exposure margins for ICICIDirect are:

EXPOSURE MARGIN
SEGMENT EXPOSURE MARGIN
Equity Delivery 5x with Interest
Equity Intraday Up to 25x
Equity Future 4x
Equity Options 2x for shorting
Currency Future NONE
Currency Options NONE

Additionally, Commodity Futures and Options have no charge.

A few Advantages that a Full Service Broker Has vs Discount Broker are

  • One can invest in IPOs, Mutual Funds, GOI Bonds and Postal Saving Schemes all from one vendor. There is no hassle of moving to or creating an account with another provider.
  • Trading can be carried out with both the BSE and the NSE.
  • One can easily trade from the low bandwidth website that the brokerages provide. There is no hassle of always needing a fast internet connection
  • They are well aligned for traders that execute a delivery based trading

Advantages that Discount Brokers Have vs Full-Service Brokers include:

  • Much, much cheaper brokerage charges
  • Aligned perfectly for intraday trading.

Discount Broker vs Full-Service Broker: Offline Presence

Discount brokers don’t have as many branches and operate primarily on the internet. On the other hand, Full-Service brokers operate via a number of offices across the country.

Suitability:

A discount broker is better suited for individuals who are well versed with the market, know the ins and outs and can carry out research and trading on their own.

However, individuals that seek hand holding, and are yet to learn using trading tools to their advantage should opt for a Full-service broker.

At the end of the day, either of the brokers can help you attain your investing goals. However, it is crucial to pick what suits your temperament the best.

Picking the wrong broker can make a significant dent in your investing returns.

If you find yourself having the following traits, you should pick a discount brokerage.

You Should Opt for a Discount Brokerage if:

  • You don’t have much capital and can’t afford to spend more on fees or commissions.
  • You’re knowledgeable and can make your own investment decisions with ease.
  • You don’t want a salesperson or some advisor to urge you or interfere with your trading decisions.
  • You’re very comfortable with using mobile or online interfaces to trade.
  • You’re enthusiastic when it comes to learning how to use tools and resources to make smarter decisions with your money.
  • You’re around other financial experts, and don’t need a broker to support your trading.

If you have most of the traits on this list, a discount brokerage is the best option for you.

However, you should take a closer look at a full-service broker if the following characteristics fit your situation better.

You Should Opt for a Full-Service Broker if:

  • You haven’t invested ever before.
  • You’re intimidated by the idea of investing.
  • You’re always looking for good investing advice.
  • You want exhaustive assistance with managing your wealth in other forms like retirement planning or estate planning.
  • You can afford to pay the slightly higher commissions and fees.
  • You’re looking for comprehensive advice on saving tax in the long term.

When you’re in the process of picking a brokerage house, be it a discount or full-service, you must realize that there is never a single perfect choice for everyone.

Each investor has their own needs and preferences. Nevertheless, every entrant in the financial market must consider all the factors mentioned in this article. Considering all the parameters will ensure that you make the best decision.