For a salaried person or for someone who earns a living on daily wages, investing is kind of a mysterious task to accomplish. So, How to open an investment account in India the right way?
You know a lot of information on where to invest, what all options out there with a plan to allocate.
But sometimes, it’s just too much information to digest clear facts to separate the choppy options from what you actually need for your own profile.
There are options out there based on the purpose and profile
Who doesn’t want to invest their money for better returns!!!
If you think,
Savings account & Fixed deposit returns !!!!
For better returns???
Fixed Deposits hardly beat inflation. But, Savings account ???
I’m not against savings bank account returns, but the bank returns are not a viable option for all.
Surely not for a younger investor who has a lot of time to allow compounding to do its magic.
There are tons of options out there that you can explore for getting a better return for your money. But it all starts by choosing the right brokerage account which suits your purpose.
What is an Investment Account?
An Investment account is an online account where you can buy, sell, and hold stocks and other investible securities, unlike a typical bank account. A normal bank savings account is a 1 in 1 account, where you can only save your money and perform daily transactions. An investment account is a 3 in 1 account where you can trade or invest and can hold your stocks, bonds and mutual funds, and other investible securities.
Investment account vs trading account. Why does it matter?
Full-service Broker / Investing Account:
Investing is a long term process and requires you to hold securities to gain from the long term market returns that result from the continuous growth of the fundamentals of securities.
If you prefer to take this approach to grow your money, you need a special kind of account
What is a 3 in 1 account? Need for it:
A 3 in 1 account or Demat account consists of Savings Account + Trading account + Holding account. All in one.
- Savings Bank Account for Cash Holdings
- Trading account for placing buy and Sell Orders
- Demat Account for holding your securities
- Transactions between all the 3 accounts are seamless in a 3 in 1 account
- Your unused funds stay in your savings account
- Interest will be paid for the unused funds that stay in your savings account
- Charges are a little more when compared to 2 in 1 trading account
- Technology is built keeping investors and regular users in mind. So you cant expect advanced cutting edge latest features. Which is fine, as far as you plan to remain as an investor
- Much suitable for beginner investors in the stock market
If you want to invest for the long term, you need a full-service DEMAT account
Related Read: Best brokerages to open an investment account in India
Discount Brokerage / Trading Account:
Trading is a short term approach. Your choice here would mostly be to gain from the market movements with respect to news and events which create fluctuations to the prices of the securities.
Though there may not be inherent fundamental or qualitative changes to the underlying investible instruments, if you can observe and predict the short term impact of those events on the investible securities, you can take a buy or sell position and gain from the price fluctuations at a short span of time.
What is a 2 in 1 account? Need for it:
A 2 in 1 account consists of a Trading account + DEMAT account.
- Trading account for placing buy and Sell Orders
- Demat Account for holding your securities
- Unlike a seamless 3 in 1 account, a 2 in 1 account needs a little manual effort to transfer funds from a separate savings bank account, which can be linked. It’s still worth the effort if you are looking for a discounted brokerage for trading
- Your unused funds stay in your trading account
- No interest will be paid for the unused funds that you hold in your trading account
- Charges are lower than a 3 in 1 investing account. Some brokerages offer a flat fee irrespective of the volume of trades
- You can expect the latest cutting edge technology which would be much better than a 3 in 1 account, to meet the advanced requirement of nimbleness coupled with trade analytics and features, which is more aligned for the risk appetite of traders.
- Much suitable for traders
For a trading approach, all you need is an account to place buy and sell orders to execute the trade.
There are many discount brokers offering trading accounts with a lot of functional options to efficiently manage your trades.
Related Read: Best Discount Brokerages to open a trading account in India
Related Read: How to open an investment account in India from abroad
Usually the time between buying a stock or security for delivery to the time it gets delivered to your Demat account will be T +2 days in India. This time frame is crucial to decide whether you need an account to hold your securities.
Likewise, a trading account is intended for use by traders, who typically place a buy order and close the trade mostly the very same day, which avoids the need for a Demat account. For this, a 2 in 1 trading account is where the efficiency is.
Can I use an Investment account for trading?
Yes, you can use an investment account for trading but the brokerage charges will be high. Since these brokers are mostly large financial institutions and AMC’s who offer various other services in the same account, they charge a little higher fee.
Unlike discount brokers who offer a much lower fee structure.
A discount broker usually operates on a trade to trade basis, with minimum delivery. So they can provide services at a much cheaper rate without the need for depository charges to hold your securities
Can You trade in both BSE & NSE ?
Yes, You can trade both in BSE and NSE. Usually, NSE will have a higher volume of trades happening
How to Find a Broker? Things To Consider.
Consider these factors before you finalize your brokerage account that best suits your purpose
Account Opening Charges:
Ensure that the account opening charges are minimal or no. Some of them will expect an initial deposit into your account to get started
Annual Maintenance Charges:
This would be charged once per year to maintain your trading and Demat account.
Apart from the regular maintenance charge, Many accounts require you to maintain a minimum average balance at all times.
If the trade involves the delivery of the securities, there would be charges of between 0.08% to 0.55% charged by your brokerage for additional processing. For non-delivery transactions, there won’t be any charges
Security of the Dashboard:
The authentication for the account should be secure enough to keep your money safe from hackers, password theft, and privacy issues. Ensure that there is a multi-factor authentication for any investment or trading account.
Ease of use & interface:
The user interface should be easy to place your buy and sell orders. Some premier brokerages will provide advanced analytics as a free option. Which can help you to monitor your portfolio performance at ease
Ease of Transactions
Ensure no complex processes are required to bring funds IN and OUT of your account
Brokerage Commissions and charges for Intraday trade
If you buy and sell a position on a single trading day or session, it is classified as an intraday transaction. Typical intraday charges would be 0.02% to 0.05% of the total value of your transaction
Brokerage Commissions and charges for Delivery trades
For any positions bought and hold beyond a single trading session, it gets classifies as a delivery trade. It gets recorded in the name of the owner of the security.
Since it involves additional charges of delivery, it is charged slightly higher than an intraday trade. In the range of 0.0% to 0.55% of the total value of your transaction
Various plans with respect to brokerages
Some brokerages offer various plans based on the volume of transactions that you do. You can opt for one to benefit from a lower rate of charge if you prefer to trade on higher volumes, which may reduce your cost.
But remember, do not opt for these plans if you are not planning to place significant transactions in the near future, else the commissions would eat up your returns. Alternatively, standard rates would be more economical in some cases
Comparison of charges for various Indian Brokerage service providers
Mobile application, Call to trade facility & Accessibility
There should be a facility from the stockbroker to place buy and sell orders over mobile application or a phone call. This will help in your execution of on-time decision making with your investment positions
Consider the other services offered by the brokerage company
A well-built portfolio should consider investments from various asset classes. For an investment account, it is essential to have the facility to buy all kinds of investment from a single account
- Mutual Funds,
- Futures & Options,
- Currency, Commodity,
- Gold Bonds
Ensure your brokerage offers these services
An established brokerage provider will provide you some additional assistance which may help you invest better.
It’s your money. So please analyze every option and decide before choosing one.
Make your own investment decisions or consult a SEBI registered investment advisor
Additional Features from Brokerages:
- Recommendations, Trading calls, Frequent portfolio & watchlist updates
- Training sessions & Analyst calls
- Regular update about major market events & the current & future trend predictions
Step By step process on how to open an investment account in India:
Find and approach a SEBI registered stockbroker
Complete the KYC process and other documentation with your broker
Documents required to open an account
- Address Proof
- ID Proof
- PAN card copy
- KYC form
- Canceled check leaf
- 3 Passport size photographs
Opening an investment account is a one-time setup, but the process of using it mindfully and making good returns requires quality time to select and choose investment options. Moreover, whether you make the trade or not, the one thing which you should always remember is you should not lose your money.
100 – ( 50% of 100 ) = 50. Which is always not equal to, that 50 + (50% of that 50).
Its hard to maintain wealth than to earn it.
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