Keep an eye on brokerage costs.

Hi there,

The cost associated with buying and selling shares are very tricky. Ask any relationship manager of a broking house about the commission they charge and he would readily come up with this answer- “.05% for intra day trades and .50% for delivery”. If you try t0 walk away, he’ll come back with his second offer of “.04% for intra day and .40% for delivery”. This can go down even to .01 for intra day and .10% for delivery!

  • Tip: Although you may finally select a broker, make sure that the brokerage applied on transactions is in line with the offer he made initially. You need to check the brokerage applied by your broker periodically.
  • Brokers charge an amount called ‘Annual maintenance charges’ from your account. Check those charges. If they are charging AMC every month, it eats into your invested fund. The best option is to  pay a lumpsum amount while joining and get exempted from AMC being charged monthly. Generally, Borkers charge a lumpsum  of around Rs 500 – 750  for a life time.


The effective rate of brokerage, however, is different from the above percentages. Apart from brokerage there are other related costs which these managers don’t talk about. Before getting further into the topic we need to understand what the terms ‘intra day’ and ‘delivery’ mean. Let’s see-

Intra day - Intraday Trading, also known as Day Trading means you buy a stock and sell that position before the end of that day’s trading session thereby making a profit or loss for you. A buy position and a sell position of same number of shares of a company – All in one day’s trading session. Thus, intraday means trading in a day. In intra day trading, brokerage is low in comparison to the delivery.

Delivery- You do not square off your position in a day session. Instead, you decide to hold the shares till the next trading session or till 20 years or till your target is reached.

Now let’s talk about what those charges are. Since the topic is about brokerage , i have also mentioned about the brokerages on derivatives transaction.

RATES OF BROKERAGE

The net trading cost is computed as below:

  • Trading cost = Brokerage + STT + Stamp duty + other charges

Now lets try to separate all the cost components-

Brokerage: It is calculated at the agreed percentage, on the total cost of shares bought or sold. If you are charged .03% for intraday and .30% on delivery, the basic brokerage figure would be as follows-

  • Market price of the share x number of shares x .03% (intra day)
  • Market price of the share x number of shares x .30% (delivery)

Securities transaction tax- It is imposed on the sale/purchase of securities by investors and is charged on total turnover. It is charged as follows:

  • Equity Delivery Transactions
    Purchase: 0.125% of Turnover i.e. (Number of Shares * Price)
    Sell: 0.125% of Turnover i.e. (Number of Shares * Price)
  • Equity Intra-day Transactions
    Purchase: NIL
    Sell: 0.025% of Turnover i.e. (Number of Shares * Price)
  • Future Transactions
    Purchase: NIL
    Sell: 0.017% of Turnover i.e. (Number of Lots * Lot Size * Price)
  • Option Transactions
    Purchase: NIL at the time of purchase of option. However the purchaser has to pay 0.125% of the Settlement Price i.e. (Number of Lots * Lot Size * Strike Price), in case of option exercise
    Sell: 0.017% of Premium

Transaction charges: There is a very slight difference in the rate of transaction charges for NSE and the BSE.

  • Equity Delivery Transactions
    Purchase: 0.0035% of turnover in NSE and 0.0034% of Turnover in BSE
    Sell: 0.0035% of turnover in NSE and 0.0034% of Turnover in BSE
  • Equity Intra-day Transactions
    Purchase: 0.0035% of Turnover in NSE and 0.0034% of Turnover in BSE
    Sell: 0.0035% of Turnover in NSE and 0.0034% of Turnover in BSE
  • Future Transactions
    Purchase: 0.002% of Turnover i.e. (Number of Lots * Lot Size * Price)
    Sell: 0.002% of Turnover i.e. (Number of Lots * Lot Size * Price)
  • Option Transactions
    Purchase: 0.05% of Premium
    Sell: 0.05% of Premium

SEBI turnover charges: For equity transaction, this remains NIL but for derivative transactions, it is charged @ 0.0002% of total turnover. The calculation would be as follows.

  • Equity Delivery Transactions
    Purchase: NIL
    Sell: NIL
  • Equity Intra-day Transactions
    Purchase: NIL
    Sell: NIL
  • Future Transactions
    Purchase: 0.0002% of Turnover i.e. (Number of Lots * Lot Size * Price)
    Sell: 0.0002% of Turnover i.e. (Number of Lots * Lot Size * Price)
  • Option Transactions
    Purchase: 0.0002% of Premium
    Sell: 0.0002% of Notional Value in case of exercise or assignment

Stamp Duty

  • Equity Delivery Transactions
    Purchase: 0.01% of Turnover. Turnover usually taken in multiple of Rs 5000
    Sell: 0.01% of Turnover. Turnover usually taken in multiple of Rs 5000
  • Equity Intra-day Transactions
    Purchase: 0.002% of Turnover. Turnover usually taken in multiple of Rs 5000
    Sell: 0.002% of Turnover. Turnover usually taken in multiple of Rs 5000
  • Future Transactions
    Purchase: 0.002% of Turnover. Turnover usually taken in multiple of Rs 5000
    Sell: 0.002% of Turnover. Turnover usually taken in multiple of Rs 5000
  • Option Transactions
    Purchase: 0.002% of Premium
    Sell: 0.002% of Notional Value in case of exercise or assignment

Service Tax

Service Tax, Surcharge and Education Cess are applicable only on Brokerage. No Service Tax, Surcharge and Education Cess are not applicable on Securities Transaction Tax (STT) etc..Service tax is levied at 10.30%.

EXAMPLE:

Now let’s assume that you purchased 10 ICICI bank’s share at Rs 868.00 through NSE. Assuming that the brokerage charged is .05% for intra day and .50% for delivery, the total cost of the share (for delivery) would be calculated as follows:

Basic brokerage:

  • Rs 868 x .50% = Rs 4.34
  • Security transaction charge = 868 x 10 x 0.125% =Rs 11
  • Transaction charge = Rs 0.32
  • SEBI turnover charges = NIL
  • Stamp duty = Rs 0.87
  • Service tax  = 4.47
  • Total cost of 10 shares @ 868 = Rs 8740.06

When you buy shares, these figures will appear on your digital contract note sent to you via mail. It’s important to keep a print out of those digital contract notes in a file. Brokerages are very important costs associated with stocks and you cannot afford to ignore it. You have to be vigilant on the amount you are paying. Periodic check of your ledger account is necessary.

The brokerage affects investors in different ways. For infrequent traders, a higher brokerage would lengthen the amount of time required to break even. If you are a high volume trader, a large brokerage will eat into their overall return. Now, hope you’ve understood the cost structure involved with stock transactions in India.

Have a nice day !

You may like these posts:

  1. What are Demat accounts?
  2. Going Online
  3. Who is a stock broker?

28 Responses to “Keep an eye on brokerage costs.”

Tamil

August 30, 2012 at 9:13 pm

hey…
Article was well explained and UI of the site is simple to use . Keep up the work ..

J Victor

August 31, 2012 at 8:20 am

thankyou:)

ashok chowdhary

October 12, 2012 at 5:57 pm

I being new to the trade. you have wipe off complete illusion and confusion. Thankful to you.

J Victor

October 14, 2012 at 6:18 pm

thankyou. good luck :)

shubh

November 19, 2012 at 1:50 pm

Hie can you explain me this things:
1]Is stop loss allowed in day trading?
2]Is there a method to calculate stop loss?

J Victor

November 21, 2012 at 9:43 am

yes. stop losses are allowed in day trading.
fixing stop losses is a subjective topic. to put it simply, You can put a stop at the point beyond which you are not willing to accept the loss. so basically it depends on your risk taking capacity. There are some methods to fix stop losses based on a stock’s volatility. They are not fool proof methods.

pushkar

November 22, 2012 at 12:32 pm

Hi! please explain the following to me:
for equity u r saying there are no SEBI turnover charges. but in certain banks it is charged at 0.0001% of the turnover.
secondly, are transactions charges compulsory for all type of trades? as certain banks are not charging them at all. are these to be paid to the brokers or directly to the NSE and BSE indexes? please confirm.
thanks

J Victor

November 23, 2012 at 9:21 am

Hi
there are no SEBI turnover charges for equity. if your broker is charging it, please ask them to rectify . there are instances of erratic brokerage charges by many brokers. Brokers deduct all these from your account directly.

joseph

December 13, 2012 at 9:55 am

what about the stock trading facilities offered by banks?
what is the advantage of a broker over them?

Aji

December 14, 2012 at 2:38 pm

Can you suggest a Broker charging 0.30% or less . As NRI’s have to pay almost 15% as TDS on the profit , and if a Broker charges 0.75% for a trade , only if the stock rises above 14% , he can make a profit of atleast 10% . Then it would be better to put that money in NRI fixed deposit and get almost 10% wthout doing anything.
I think there should be brokers like Charles Shwab in India , who charge just $8.95 per trade irrespective of the amount . Zerodha is one , but they have not yet started NRI trades.

J Victor

December 17, 2012 at 8:34 am

You’ll have all the three accounts- trading , demat and your bank account wit the same company. it facilitates a bit more fast transfer of money from your trading account to your bank account and back.

Deepak

February 4, 2013 at 5:14 pm

IntraDay:-
Cost: 100 | Quantity: 100

Basic brokerage:
• Rs 100 x 100 x .03% (P)= Rs 3
• Security transaction charge = 100 x 100 x 0.125% (P)=Rs 12.50
• Transaction charge (P)= Rs 0.35
• Stamp duty = Rs 0.01
• Service tax = (P) 0.309

Total cost of 100 shares @ 100 = Rs 10000 + 16.17 = 1016.17

= .32% Intraday Buy+Sell Expense. Need atlest this much profit in intraday to level up.

Praveen

February 15, 2013 at 11:27 am

intraday example shown above is not always true.
say an example of ICICI direct day trading, they say they charge .05 brokerage, which is one way (only buy for sell again .05) but in reality its not true, .05 brokerage apllicable only if your transaction is more than 50,000 else they charge 2.5% or 25Rs which ever is lower.
in above example
. Rs 100 x 100= 10000 brokerage is not 10000x.05 it is 10000+25Rs + Taxes
so be careful of these things.

J Victor

February 17, 2013 at 10:14 am

dear praveen, the examples are general in nature. it’s not broker specific. the idea behind the post is to explain how brokerages are caculated.
thanks for your words.

Sunil Shevante

March 7, 2013 at 1:27 am

Hi Jins,

I really liked your site. It is very simple and to the point.

I think that you should update the article for the recent STT changes. The charges have been brought down.

Thanks,
Sunil Shevante.

Shailendra

April 6, 2013 at 6:40 pm

Hi Jins,

Please explain me in short :-

1) How I select a Best Broker,
2) Can I Trade Online ?,
3) Can I Trade Intra-day only?

Thanks,
Shailendra Chaudhari
+91 94031 88699

john

May 9, 2013 at 12:52 pm

Hi Victor,

Your website is my favorite now. I am a newbie and wants to trade in equity only.
could you pls tell me a good broker with excellent services and less brokerage charges(hidden charges as well)?. I have little amount around 20K which i want to invest in equity. Pls send me a mail with the broker info.

Shahid

June 25, 2013 at 12:17 pm

This is great. Than you so much for writing this article.

J Victor

June 26, 2013 at 12:09 am

Thankyou !!

skr

July 12, 2013 at 1:31 pm

awesomely explained friend.!
If you have idea, can you pls explain Futures and Options trading as well.

Ameya J

September 19, 2013 at 9:43 pm

Thanks a lot for sharing fundamentals.
A real value addition.
Very very neatly explained.
Keep it up.

mathi

October 26, 2013 at 1:25 pm

hi
really thanks to sharing this ideas. keep it up.
I was opening a demate in sbicap ..
just i started to do marketting only in EQ..last i bought and sold a share with 08 rs/- profit , but brokerage debited more then that,,, single share purchasing is not good?
pl explain

thanks

CH.GOPI

November 23, 2013 at 10:28 pm

THANK YOU FOR YOUR VALUABLE SUGGESTIONS, EVEN A SMALL BOY CAN UNDERSTAND SHARE MARKET IF TAUGHT BY YOU, THANK U.

shafat

February 17, 2014 at 12:50 pm

i am beginner in share market . thanks for the knowledge .

Kishor

May 4, 2014 at 1:48 pm

hi Jins,
thank you for educating us!
your tips are helping many of beginners like me.
keep the good things.
could you pls answer me below questions.

1. a better online broker
2. brokerage plus charges are applied on both buy and sell of shares?

shankar

August 10, 2014 at 8:10 pm

thank you it helped me

aabs

August 24, 2014 at 3:37 am

thanks alot for giving a cristal clear learning expirience.

rama

December 4, 2014 at 1:32 pm

i am a biginner information is easy to understand and is helpful too thankyou

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