Pay in bulk, cut your transaction fee

Broking Cos Take Money From Clients Upfront, Who Then Get To Trade At A Discount
Sep 19, 2008
Ashish Rukhaiyar & Benny Antony
MUMBAI

RETAIL broking firms, staring at shrinking revenues due to the sustained downtrend in stock prices, have now come up with a new way to generate cash for their business. Some of the broking firms have started approaching their customers with the concept of ‘advance brokerage’.

In this, the client pays a certain amount of money upfront and then trades without paying any brokerage on individual trades. Depending on the quantum of upfront payment, the customer also stands to gain by way of reduced brokerage.

The concept works like this. Say for instance, the customer pays Rs 10,000 as a one-time deposit to the broker. The customer can then trade without paying any brokerage charges as long as his total brokerage outgo does not cross his deposit limit. It is a sort of win-win situation for both the client and the broking house. The outfit is able to garner a sizeable amount of money upfront and the customer gets a discount in transaction charges.

The customer, moreover, can continue trading after exhausting his deposit limit by making another lumpsum payment. The discount in brokerage, interestingly, directly corresponds to the quantum of deposit that the customer is ready to shell out.

Leading broking firm Religare has a scheme called ‘Trump Account’ for its online customers. Under this scheme, the customer can pay Rs 2,500 as ‘cost of subscription’ and trade for 12 months, during which the brokerage on delivery trades would be 0.25% while that on intraday trades would be 0.025%. If the customer is ready to shell out Rs 15,000, then the brokerage comes down to 0.15% for delivery trades while those on intra-day trades falls to 0.015%.

Broking outfits, through such schemes, are able to woo customers away from other brokers that charge higher transaction fees. Networth Stock Broking V-P (sales) Deepak Mehta says more brokers are coming out with such schemes as it helps them in “generating a decent amount of money at one go,” and are also able to “offer competitive rates to clients.”

Another Mumbai-based outfit claimed that they had a similar offer some time ago but had to close it due to software glitches as well as lots of complaints from customers. An official from the broking firm said, this offer requires a dedicated software. Besides, they also received a lot of complaints from clients regarding discrepancies, due to which they had to discontinue.