What Is a Brokerage Account?
If you are planning to start investing in financial assets, opening a brokerage account is the first thing you need to do to start your journey as an investor. Here's all you need to know when choosing the best brokerage account in India.
A brokerage account or a DEMAT account is a financial account that allows an investor to invest and buy financial assets like stocks, mutual funds, bonds, ETFs, and other securities. This account operates like your bank account, where you can add funds and invest in any financial asset. Unlike a bank account, the brokerage account can not be used for financial transactions and has to be opened with a bank broker, a licensed full-service broker, or a discount broker.
Opening a brokerage account is exceptionally straightforward and can be done entirely online. All you need to do is fill up an application form online and submit the required documents and information. If everything is on track, opening a brokerage account takes as low as 15 minutes. Once the brokerage account is opened, you will need to transfer funds to your account, and you are done! You can start investing in stocks, mutual funds, bonds, Initial Public Offerings (IPO), and other financial assets and perform all the buy or sell operations right at home, entirely online.
To get started on your investment journey here is all you need to know about what is a brokerage account and which is the right one for your needs.
Types of Brokerage Account
Multiple brokerage account providers offer multiple brokerage options, each catering to a unique segment and need. The various types of brokerage accounts that you can opt for are:
Margin Brokerage Account
In a margin brokerage account, the investor has an option to borrow money from their respective brokers at low interest. This system allows the investor to make advance trades.
Self-Directed Brokerage Account
These brokerage accounts are best suited for investors who are well versed in market conditions. The investors here make their portfolios and research as per their investments. The purchases and sales are also made online by the investor in a self-directed brokerage account.
Cash Brokerage Account
In a Cash brokerage account, the investor must deposit the funds in the account in advance for making a purchase. The brokers do not lend money or any financial assistance to make a purchase order. The purchases are settled here on a specific date and are considered the most traditional type.
Discount Brokerage Account
Discount brokerage accounts are mostly online accounts that are usually opened at no cost or a bare minimum cost. While these accounts offered the lowest opening charges, the trader must do all the planning, research, and choosing of securities.
Full-Service Brokerage Account
These types of brokerage accounts are provided for exorbitant prices as the brokers or service providers take all the responsibility for the planning, research, portfolio designing, securities sales, and purchases. A full-service brokerage account provides a full-time financial advisor to their investors.
Benefits of a Brokerage Account
Having your brokerage account comes with lots of benefits for the investor. It enables investors to get detailed research and provides multiple benefits and safety.
Some of the benefits are:
Easy Access To Make Your Own Investment Decisions
It is easy for the investor to access all the stock-related investments. As all the investments are in one place, it gives the investor access to all his investments whenever he feels like checking them or doing any transactions.
Access to Emergency Funds
Funds in the brokerage account can be accessed anytime and quickly, complementing your emergency reserve in your savings account. In just 2-3 business days, your invested amount can be remitted to your bank account, making it extremely easy to access your funds.
Reach Your Saving Goals
It helps you reach your saving goals in nearby future. Investing in stocks helps you stay invested in the market and overcome market fluctuations and risks, which can help you deal with inflation in the future.
Get Additional Financial Benefits
You can even make smart financial decisions by yourself, such as:
- If your investments in capital markets generate negative returns, you can harvest tax losses in your account to reduce your taxable income or offset other capital gains
- If you have low taxable income during a particular year, you can accelerate/recognize capital gains that year and take advantage of preferential tax rates.
Which Type of Charges are Applied to Your Brokerage Account?
Choosing the best brokerage account is a tedious job, as there are many options nowadays in India. Shortlisting a low brokerage Demat account is also essential as there are sometimes many hidden charges.
There are different fees that your Demat account brokerage charges consist of, some of which are:
- Annual maintenance charges
- Funds transfer fees
- Account opening and handling charges
- Hidden charges
- Actual brokerage charges
- Research and special service charges
The brokerage account charge is calculated in different ways like stamp duty, transaction charges, GST, securities transaction tax, etc. So when picking a brokerage account, ensure you properly analyze all the features and benefits while also considering the fees and charges you may incur on your investments.
Choosing the correct type of brokerage depends on the size of your portfolio, your knowledge, your research, and the size of your investments. Online low brokerage Demat accounts often include additional features like detailed analysis, charts, and options to track particular stocks and get targeted recommendations with an interactive and simple dashboard. It enables new investors to quickly analyze and grasp information related to their investments and make informed decisions.
Even if you go for a full-service or discount broker, you do not have to worry about the security of your investments. The ideal choice is always to compare the Demat account brokerage charges and services offered to help you pick the ideal option for your financial goals.
What is a brokerage account?
A brokerage account or a DEMAT account is a financial account that allows an investor to invest and buy financial assets like stocks, mutual funds, bonds, ETFs, and other securities. This account operates like your bank account, where you can add funds and invest in any financial asset.
However, unlike a bank account, the brokerage account can not be used for financial transactions and has to be operated via a bank broker, a licensed full-service broker, or a discount broker.
Is it mandatory to have a brokerage account to invest in shares and IPO?
A brokerage account is crucial for investing in IPO, shares, mutual funds, and other financial assets, as it is the single point where all these transactions are processed.
The brokerage account ensures that the individual can take all the necessary actions and does not have to depend on any third party to perform any trading or investment actions.
Can I have multiple brokerage accounts?
A person can hold shares, bonds, and other financial assets in one or multiple brokerage accounts, and there is no limit to how many accounts one can hold.
No government regulations or SEBI rules around the maximum number of accounts a person or entity can hold, and the same PAN Card can be linked with multiple Demat accounts.
Which is the best brokerage account for beginners?
For those new to investing, the ideal brokerage account has low fees, provides an in-depth analysis of each stock, makes recommendations based on your needs, and can help you learn and master the stock market to make well-informed decisions.
Discount brokerage accounts are the ideal option, especially for those new to investing and beginners, given their features, online presence, app-based functionality, dashboards, and low to zero transaction fees.
Do I need to make any minimum investment for opening a brokerage account?
There is no minimum balance or investments that you will need to make for opening a brokerage account. Each brokerage account provider will charge a small fee for opening the account, which is the only payment required.
These and other brokerage account opening charges can be saved by option for a discount broker, as you can easily open an account, and it does not require you to transfer any funds to your account.