What are the Charges Involved in Stock Investing?
Everything involves a set of charges. Even if you are buying gold, one of the most ancient investments in our country, we are still subject to different sorts of charges and fees. Let me tell you how, you are probably planning to buy gold as jewellery from a physical store, and you want to get 3 grams which will cost you around a few thousand. But while you buy it, the charges of making that gold are also added, leaving you to pay more than just the rate or the gold. It’s just how the way things work. Let us look at the charges involved when you invest through stocks, shall we?
While you trade in the stock market, it is a given that you must know all the fees and charges – these also include brokerage fees.
Who is a Broker?
A broker is a financial intermediary. It can be a middleman or an agent platform that allows you to trade stocks in the Market. You actually need the services of a broker to trade in different investment vehicles like stocks, futures, derivatives, and mutual funds. There are typically two types of brokers in the market today, and they are:
Full-Service Brokers – They are brokers who give brokerage services along with a slew of other characteristics like the Market reports and advisory, customer service, and cutting edge research.
Discount Brokers – They are brokers that provide reduced broking charges compared to complete services. The charges are fixed, and they don’t provide any other services.
Now, you know there are brokerage charges. Let’s look a little more into these fees.
What is a Brokerage Fee?
From a holistic view, the charges and fees of a broker to you are for holding and managing your investments. These fees can include – annual fees, research data fees, and inactivity fees. It’s crucial you know the different types of brokerage fees. On that note, there is also another thing you must keep in mind – different brokerages have a different set of charges, but here is the typical view of these charges. You can also use the brokerage charges calculator of brokers you are interested in to find the exact charges.
Common Brokerage Fees
- Trade Commission: They are also known as the trading fee. This is a Brokerage fee that is charged when you purchase or sell stocks. You could also Pay fees for buying and selling other investments like options or ETFs.
- Mutual Fund Transactions Fee: This is a Brokerage Fee that is charged when you buy or sell some mutual funds.
- Expense Ratio: This is an annual fee that is charged by mutual funds, index funds, and ETFs as a percentage of your investment.
- Sales load: These charges are on some mutual funds. It is paid to the broker or salesperson who sold the fund.
- Advisory Fee: Usually, the percentage of assets under management is paid by the investor to a financial advisor or Robo advisor.
- 401(k): This is an administrative fee to maintain the plan. It is often passed on to the plan’s participants by the employer.
These are the common fees from full-service and discount brokers. Mentioned below are some extra expenses and charges on share trading.
Tax on Securities Transactions
This fee is levied on both sides of the purchase and selling transaction. The STT is only levied when the stock is sold during intraday trading. For delivery in general, STT is levied at 0.1% of the whole transaction on each side of the trade. The fee for intraday STT is approximately 0.025% transaction on the selling party.
Tax on Services
The service price is 15% of the brokerage charge paid by investors, and it is the same for delivery and intraday trading.
Transaction Fees
The stock exchanges levy transaction fees on both parties of the transaction. The National Stock Exchange charges a transaction fee of 0.00325% of the total amount, whereas the Bombay Stock Exchange charges a transaction fee of 0.00275% of the total amount.
Turnover Charges imposed by the Securities and Exchange Board of India (SEBI)
The apex market regulator of India’s securities markets levies a fee on both sides of a trading transaction, with a turnover charge of around 0.0002% of the total amount. The fees for intraday and delivery trading are the same.
Participant Fees at the Depository
The Central Depository Services Limited and the National Securities Depository Limited, India’s two stock depositories, charge a fixed fee to retain your transactions in electronic form. The depositories do not charge the investors directly, but the depository participants (your Demat account provider or broking company) do. As a result, the depository charges the depository participant, who charges the investors.
Conclusion
It is your job to be aware of all the charges and expenses you will be subject to while you invest in the stock market. When you know all of your expenses – you can effortlessly invest in stocks and know exactly how much money you are making.