what is brokerage cost?

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 !