How to Choose a Brokerage Plan

As intermediaries, brokers facilitate transactions related to the buying and selling of stocks, derivatives, and other financial instruments. To execute these transactions, brokers levy brokerage charges. Understanding brokerage charges and plans is crucial as it can impact the profitability of any trade or investment. In this article, we will go through different brokerage plans and help you pick the one that suits your investment needs.

What is a Brokerage Plan?

A brokerage plan is a service package offered by a stockbroker that outlines the fees associated with buying and selling investments. These plans can vary depending on the frequency of your trades, the size of your investments, and the features the broker offers. Think of a brokerage plan as a membership with a stockbroker. 

What are the Types of Brokerage Plans?

The two/three main types of brokerage plan structures usually offered by brokers are:

Per-trade Pricing:

This is a straightforward plan where you pay a set fee for each trade you execute. Costs are kept low since you only pay when you make a transaction. You can explore ICICI Direct iValue Plan to learn more about this category of plans.

Fixed Lifetime/Annual Plan:

Such plan involves either an annual or a one-time payment for heavily discounted brokerage charges. These charges are charged as a percentage of the trade value. You can explore 

ICICI Direct Prime Plans

  as an example of this category of plans. 

How to Choose a Brokerage Plan?

Before you choose a brokerage plan, you must take into consideration various factors and check whether it suits your needs. Here are some key factors you can consider when choosing a brokerage plan:

• Trading frequency: If you trade infrequently, a per-trade plan might be more cost-effective. However, a fixed monthly plan may be more economical for frequent traders.
• Investment size: If you typically trade in large volumes, per-trade pricing can become expensive. Consider plans with tiered commission structures based on trade value.
• Features offered: Brokerage plans can come with various features like research reports, educational tools, and advanced charting platforms. Choose a plan that offers features that complement your investment strategy.
• Reputation of the Brokerage: Research the broker's reputation for customer service, platform stability, and regulatory compliance before you arrive at a decision.

GST Charges Applicable for all Brokerage Plans

In India, the Goods and Services Tax (GST) is applicable to brokerage charges. The current GST rate on brokerage charges is 18%. This means that the brokerage fee you see advertised will be exclusive of GST, and the final amount you pay will be 18% higher.

How Can Brokerage Charges Be Reduced?

Let's understand this with an example:

Suppose two investors - Priya and Rahul, both want to trade in the Indian share market and have ₹10,000 as trading capital respectively. And both of them utilize this trading capital for a single order.

Priya opts for a broker with a low brokerage charge of ₹20 per trade. Rahul goes for another broker instead and is charged a certain percentage of the total trade value. On the trading capital of ₹10,000, Rahul will pay a fee that is proportional to the percentage set by the broker. So, if it is 0.5%, then Rahul will pay ₹50 as brokerage fee. In comparison, Priya pays only ₹20.

Now, let's say both of them get a return of 10% on this trade. Their profit would be ₹1,000 each. However, taking into account the cost- Priya made ₹1000 on ₹10,020 (capital + brokerage charge), whereas Rahul made ₹1000 on ₹10,050 (capital + brokerage charge). If one were to make frequent trades, then a flat brokerage fee of ₹20 is clearly more cost-effective. 

If the example has increased your appreciation of the per-trade pricing plans, you could explore the ICICI Direct iValue plan. ICICI Direct iValue is a discounted brokerage plan offered by ICICIdirect. The iValue plan is a one-time subscription plan, and it is valid for a lifetime. Suppose you trade frequently and require little to no external expert input. In that case, such a plan can be helpful in reducing brokerage charges.

By choosing the ICICIdirect iValue plan, you can avail of the following brokerage benefits-

1. All futures, options, and equity intraday trades at flat ₹20 per order.
2. The plan fee is ₹299 with lifetime validity
3. The demat AMC charges are ₹300 instead of ₹700
4. At 0.027% interest per day, you can use 100% shares as a margin limit

Conclusion

Choosing the right brokerage plan can significantly impact your investment returns. So, understand the types of plans available, consider your trading activity, and compare features and fees in order to make an informed decision that aligns with your financial goals. Choose a plan that offers a balance between cost, features, and the level of service you require.