Thursday, Jul 07, 2022
Outlook Money

How Much Does It Cost To Trade In The Stock Market?

Stock market trading is on a high, but there are costs involved. Here are the costs you should look at when selecting a stock broker

Stock market

While investing in stock markets can be a lucrative option, there are risks too. So, while trading in the stock market, knowing about the various fees and charges, including brokerage charges, and how these charges are respectively calculated, can tell you the real cost of trading. Investors and traders have to incur various charges, taxes, levies, etc. to transact in the stock market. Here’s a look at those.  

The costs can be bifurcated into four categories: 

  • Statutory levies: These are charges levied by the central/State governments.
  • Regulatory levies/charges: These are charges levied by the securities and Exchange Board of India (Sebi) and exchanges.
  • Brokerage: This can be charged as mutually agreed between the stock broker and client (subject to maximum permissible by the exchange) and brokerage rates should be mentioned in a tariff sheet.
  • Other mutually agreed charges: These charges can be collected through the bill and/or ledger but not through the Contract Note.

What Can Be Collected From The Client Through The Contract Note?  

Securities Transaction Tax (STT), GST on brokerage and exchange transaction charges, stamp duty, Sebi transaction fee, exchange transaction charges, investor protection funds and brokerage can be collected from the client through the Contract Note. Clearance fee cannot be collected from the client through the Contract Note. 

What Can Be Collected From The Client Through Bill And/Or Ledger Only? 

Demat charges, API charges, clearing fees, application usage charges and any other mutually agreed charges between stock broker and client can be collected through bill but not Contract Note. Only specific charges mentioned in the above can be collected through Contract Note. 

Mandatory And Regulatory Charges 

Securities Transaction Tax (STT): This is collected by the exchange from the broker on behalf of the client and paid to the Income Tax Department of the Government of India.  

Exchange Transaction Charges: The exchange transaction charge is the income of the stock exchange and stock exchange charges to the stockbroker at prescribed rates. The stock broker can charge these to clients on an actual basis. 

Sebi Fee: Sebi is the market regulator and collects charges from stockbrokers through the stock exchange at prescribed rates. The stock broker can collect these charges from the client on an actual basis. 

Stamp Duty and GST: Stamp duty on the value of trade is collected by the exchange from the broker on behalf of the client and paid to various state governments. GST (Central and state GST) is levied as a percentage of the brokerage charged for the transaction and is charged at 18 per cent on brokerage and transaction charges. It is not payable on the Sebi fee, STT and stamp charge.   

Optional Charges  

Call and Trade: Most online flat fee stockbrokers charge additional brokerage per executed order when an order is placed by the client through the call and trade desk of the broker.  

Documentation Charges and Franking Charges: Most stock brokers open free trading and demat accounts, however, some do collect account opening fees, which can range from Rs 300 to Rs 500. 

Depository Participant Charges: Most flat fee stock brokers charge Rs20 per scrip on sell-side for equity delivery position (plus 18 per cent GST).    

Annual Maintenance Charges (AMC): Only a handful of brokers provide true AMC-free trading and demat account. Brokers usually collect an AMC ranging from Rs 300 to Rs 2,000 per annum. 

Application Programming Interface (API) Charges: Most flat fee stock brokers collect API charges that range from Rs 1,000 to Rs 4,000 per month.  

Professional Clearing Fee: It is a fee paid by the stockbroker to a clearing member and cannot be collected through a Contract Note. The stock broker can collect clearing fees from clients through bills or ledgers at agreed rates. 

As you can see there are many charges and fees involved. So, make sure to select a trusted financial partner that can provide you with benefits such as low brokerage fee, monthly unlimited trading plans, and no or little AMCs on your online demat account.  

(The author is a chartered accountant by qualification and founder, ProStocks)