What to expect full service and discount brokers in India

[mrkanitkar]

I have seen many people do not understand difference between full service and discount brokers.
I have traded with both (ICICI, MOSL, ANGEL, INDIABULLS, RK Global) and (Zerodha).
Discount brokerage is still evolving concept in India.
If you use a brokerage, it's useful to understand the difference between full-service brokers and discount brokers. Think of it this way: When dining out, your choice of restaurants ranges from Uncle's kitchen to Oberoi's Amar Vilas.
Both provide very tasty food.
At Uncle's kitchen, you have to do self service or waiter will take orders, you have to wait for waiter to come over. Waiter will not suggest good food for evening etc. He will either tell you what's hot or cold and take order quickly.
Same guy will just deliver food and plates on table. He may give you pleasant smile or may not. He will expect you to eat fast, pay bill quickly and leave place so he can serve next customer. Uncle will charge Rs. 10-15 for cup of coffee and 5 for cut-in tea and 7 for full cup of tea.

At 5 star restaurant, you will be welcomed by some sweet sixteen young girl (selected by top officials). The captain will talk to you about evening (if you have foreigners, he may speak some welcome words in foreigner's native language - see we expect FDI here ). Captain will all suggestions about food, help you select it, will take orders on latest ipad. If you do not like one of dishes (which he suggested) he will not charge you for that dish as well.
Even if you order just one cup of coffee (he will not offer cup of tea as it's not there in menu card), he will not disturb you for next 3 hours. You will endup paying Rs. 350 for coffee and 150 for some taxes and 200 Rs. for tip, total= 700/-.

Uncle always say his kitchen is best in town. Does Uncle lie? No, as he is serving different market segment. People do not expect him to hire sweet sixteen and have Captain for service.
Full-service brokerages offer following

1. 
   IPO investments
   Stock buy and sell in cash market
   Bonds buy and sell
   Mutual funds buy and sell
   Annuities
   Insurance (health, life, term, investment)
   National Saving Certificates, Kisan certificates
   Margin funding for IPO
   Margin funding for stock trading
   Margin funding for FNO
   loan against gold (under different name)
   loan against stocks
   research reports on fundamentals
   research reports on technicals
   RM
   offline and online trading
   PMS for stocks
   PMS for mutual funds
   Wealth management
   Commodities
   Private equity
   Investment advisor
   Trading calls for multiple market segments and different time frame - intraday, short term, long term
   Demat
   ECN
   Call and trade
   Funds transfer from almost all banks

Full service brokerage firms offer multiple products to cater different market segments.

Let's talk about discount brokerage
Discount brokerage firms in India mainly offers

• 
  High speed trading terminal
  High speed order execution systems
  DMA
  Shared servers for co-location.

They expect do-it-yourself investor/ traders. They will not spend time on educating investors like full service one (see Uncle's waiter and Captain in 5 star). They do not offer own DMAT service.

Both provide equal level of security for investor's money in accounts as brokerage is highly regulated business. Both are at par in eyes of Sebi or stock exchanges like NSE, BSE. It's not like discount broker will run away with your money and full service one will not. Money is equally safe with both.
Discount broker charges much less fees as against full service.

If you buy Merc, your dealer giving 2 weeks training to your driver about how to drive Merc. Merc provides free pick up for your vehicle (any where in India even if your Merc is far remote area in India) to workshop. Merc service manager gives regular calls to customer on regular frequency asking about how car is doing. Merc customers are not expected to ask for why servicing charges are so high.

But, if you buy Nano or Maruti and say you know what Merc dealer do so much and this non sense Nano/ Maruti dealer is hopeless etc. does that makes sense?

As people do not expect owner of Uncle's kitchen to hire sweet sixteen and have Captain for service. People should not expect discount brokers to offer services of full service brokers at rate of discount broker's brokerage.
What you say?

 

[DataRam]

I bet you can be a great columnist in a Finance Fortnightly .

Simply great post . The FDI metaphor is so very incredible. :lol:


:clapping:

 

[a1b1trader]

But MRK,
1. We do expect that a discount broker (DB) will provide a good service, may not be an excellent one, we understand their limitations.
2. We do expect that the trading terminal will work without any problem and certainly not break down at some crucial moment. NOW is OK but ZT seems to be hopeless, going with the review and problems of the traders on the forum.
3. We do expect that we should not ask repeatedly for ECN and margin statement. And when asked for, should not get the stock reply all the time.
4. We do expect that visit to their backoffice is not a headache by using just one obsolete browser ONLY.
5. We do expect that if anyhow we reach their backoffice, we are able to locate what we are searching for.
6. We do expect that if by clicking here and there we got what we are searching for, then we SHOULD be able to download the page.
7. We do expect that when we click the download page in excel format we do not get error in downloading.
8. We do expect that on getting error for excel format, we are able to save in HTML format.
9. We do expect that when we open the saved page of the document, IT SHOULD NOT BE A BLANK SAVED PAGE.
10. We do expect that the service of a DB does not deteriorate with time or with their expansion.

Am I asking for something special, a 5 star facility, I think certainly not. And if you think these are 5 star facilities, then I am sorry, I can't change your views.

 

[mrkanitkar]

Well, the items you have listed are mostly with software and not with service.
I am not talking specific about Zerodha but in general on discount brokerage business in India. Discount brokerage in India is just evolving. It's not matured.
When lot of large house brokerage firms are busy in layoff people at all levels and some large/mid size brokerage either sold business or shut down shops, we are getting in discount brokerage era.
The software being used by Zerodha or RKSV is of type version 1.0. It takes care of minimum things. It's still evolving, it's not as matured like thinkorswim, (owner of thinorswim -td ameritrade started business in 1983) or Interactive Brokers (who started in 1977), Zerodha started in Aug 2010, RKSV sometime in 2011. Since it's just 2 years old, it's going have lot of ups and downs (same like baby). They will learn lot of things over years to come.
If you want super smooth service, you have to use PRS Oberoi's products. Oberoi is in hotel business for last 80 yrs, welknown for enriched service. If you forget your small thing (say pencil) in their hotel room, they call you and send it by Currier (for free) or maintain for some time.


Software with 1.0 release versions normally have lot of teething problems. the end user needs lot of support, it's always pain as compared to matured product versions. If you happen to use Release to market versions of Microsoft, you will understand what I mean. Normally enterprise (big corporate) do not buy and upgrade to newer release of windows operating system until service pack is released. This is true even for SAP and many other software companies. Companies typically offer discounts and free upgrades for first few customers who willing to try / upgrade to new release.
This is also similar to Indica V1 and Indica V2. Indica V1 was having lot of issues, if you see today's Indica and V1, you will never want to sit in V1. Even Nano current version is of 1.0 release, driving experience is much better in Indica than Nano.

If you look at the way you can open/save files in office 2010 and in office 4.33, you will get what I say. Product maturity comes over period of years.
I am in software testing for last 12 yrs and IT for 17 yrs, so I am not surprise with this quality.

I agree with your expectations. I myself not happy with backoffice etc. I used RK Global's ODIN for 2 years and found it's not even having encrypted SSL tunnel for connection between terminal and their server. Anyone could catch passwords, orders. When I raised it to RKG, they did not bother to fix.

It's a decision made by your service provider (Zerodha/RKSV, MOSL) for Time to Market (releasing product to customer) vs Time to quality (spending more budgets, time for building high quality features, high quality product).

The issue is one has to take decision of product launch to start recovering costs, investments and make profits. There is always risk of getting product obsolete if gets released late (you develop great type writer but release when computers prices started coming down or calculators when mobile phone have inbuilt calc) It' s TATA or BMW or MERC who makes call to launch product. We always see at times BMW, MERC, TATA (some time), Honda, Toyota give call back to replace some parts of cars.

Except software manufactures no one gives release notes, release notes tell you list of bugs software carry and fix bug list. Like it's up to customer what suits his wallet. I used to drive Maruti 800 for 9 years, now I drive Corolla automatic. Maruti 800 gifted me knee pains. Corolla taken toll on every ride as mileage is just 9 KM/Ltr and Maruti was 23 (in year 2002). Which is better, both are great products for their segments .

 

[amyeole]

How is Zerodha?
I want to open account with them for stock option trading.

Is it good?

 

[DataRam]

How is Zerodha?
I want to open account with them for stock option trading.

Is it good?

Better if you follow the thread specifically meant to discuss about Zerodha services. That thread has extensive information about Zerodha.

 

[interceptor47]

Both provide equal level of security for investor's money in accounts as brokerage is highly regulated business. Both are at par in eyes of Sebi or stock exchanges like NSE, BSE. It's not like discount broker will run away with your money and full service one will not. Money is equally safe with both.

Is the money in the broker's account (say, for delivery based trading) backed up by the govt. - in the event the broker goes bankrupt?

 

[soft_trader]

Is the money in the broker's account (say, for delivery based trading) backed up by the govt. - in the event the broker goes bankrupt?

In case of bankruptcy investor protection fund will compensate upto a certain extent. Yes naturally for delivery based trading, when you buy shares broker gives money to the exchange and exchange delivers shares and vice-versa.

 

[megapixel]

In case of bankruptcy investor protection fund will compensate upto a certain extent. Yes naturally for delivery based trading, when you buy shares broker gives money to the exchange and exchange delivers shares and vice-versa.

is it required to register for investor protection fund ?


very soon india will have bankruptcy insurance policy

 

[soft_trader]

is it required to register for investor protection fund ?
very soon india will have bankruptcy insurance policy

No need to register. Exchange knows your personal details already. When you open an account with any broker, the broker forwards your details to the exchange for registration.

Every exchange has this investor protection fund.