How Wrong Brokerage Plan Eats Your Profit

It doesnt really matters much how much brokerage do you pay if you buy stocks for longer term.
But it matters a lot if you are positional or short term trader. If you trade in futures and options
then your profitability is also impacted by the amount of brokerage you pay. There are hundreds
of brokers in India offering all kinds of quality broking service. Charges varies from broker to
broker and if you dont negotiate with them they always charge you the maximum.
When we have so many options available at a bargain price why to pay extra unnecessary ?
There are basically three types of brokerage plans offered in the country
1. Pay as you trade
In this kind of plan you pay a certain fraction of your trade value. The
common charges are 0.5 % or 0.3 % of your trade value. If you negotiate with the broker you
can make it either 0.2 % or 0.15 %. All large brokers likes sharekhan, IIFL, Angel , ICICI, Kotak ,
HDFC etc follows this kind of structure. Apart from this there is also minimum brokerage of 2530 RS , which is the minimum amount that you have to pay atleast.
2. Prepaid Brokerage In this brokerage structure you pay a lump sum amount in advance as
brokerage. After that your brokerage gets reduced ( generally 0.1% ). The more you pay in
advance the less you have to pay as brokerage. The problem with this kind of structure is that, if
you dont trade during the particular period, its not carried forward further and your prepaid
amount actually gets wasted.
3. Fixed pay per trade In this kind of structure you pay a fix amount only per trade
irrespective of the trade size. Most of the brokers charges certain fixed amount in advance to
avail this plan. This fixed brokerage amount varies from 9 20 Rs broker to broker. Whether you
buy 1 lot or 100 lots of nifty you have to pay the same only per trade. This kind of structure is
very good for those who trade in big volume. But becomes expensive for low volume traders.
Apart from the brokerage you have to pay other charges also. Some of these charges are applied
over the brokerage you pay.
Below are the extra charges.

STT( stock transaction tax ) 0.1 for delivery 0.025% for intra-day
Transaction charge NSE: 0.00325% | BSE: 0.00275% | MCX-SX: 0.002%
Service tax 12% on (Brokerage + Transaction Charge)
Education cess 2% of Service Tax
Higher education cess 1 % of Service Tax
Stamp charges: varies state to state
Sebi charges 20 Rs per crore
So you can see that service tax, education cess , higher education cess directly depends
on the brokerage amount. If your brokerage is high these charges will also be
high. Lets see how the brokerage structure effects your profitability.
How Brokerage effects profitability
Mr. A broker charges 0.5%
Mr. B broker charges 0.3%
Mr. C broker charges 0.2%
Mr. X broker charges 20 Rs per trade
If all of them buys 30 shares of Reliance at Rs 1000 (worth 30 000) and sells at Rs 1100 (33000
worth) at NSE next week, lets see how much they will actually earn.
From the above comparison you can see how Mr. A was paying more service tax and other taxes
on brokerage and how it has effected the net gain. Mr. X made 300 Rs more than Mr. A on same
trade just because of better brokerage structure. This was just a example of one trade, so you
can understand how much difference it creates over the trade you do monthly and yearly. A good
brokerage plan not only improves the profit but also reduces the loss.

Now there are some kind of investors who prefers to buy shares worth 2 to 5 thousand
systematically every month than buying in bulk . For these kinds of traders flat brokerage per
trade becomes little expensive.
Zerodha charges 20 Rs or 0.1% whichever lower per trade, so whether buy in small quantities
systematically or in bulk pay the minimum always. And dont have to pay any advance
brokerage or minimum brokerage kind of things.
Mr. A @ 0.5%
brokerage

Mr. B @ 0.3%
brokerage

Mr. C @ 0.2% Mr. X @ 20 Rs

Buy Value

30000.00

30000.00

30000.00

30000.00

Transaction
charge

0.98

0.98

0.98

0.98

STT

30.00

30.00

30.00

30.00

Brokerage

150.00

90.00

60.00

20.00

Service tax

18.12

10.92

7.32

2.52

Education cess

0.36

0.22

0.15

0.05

Higher
education cess

0.01

0.01

0.01

0.01

Net Payable

30199.46

30132.12

30098.45

30053.55

Sell Value

33000.00

33000.00

33000.00

33000.00

Transaction
charge

1.07

1.07

1.07

1.07

STT

33.00

33.00

33.00

33.00

Brokerage

165.00

99.00

66.00

20.00

Service tax

19.93

12.01

8.05

2.53

Education cess

0.40

0.24

0.16

0.05

Higher
education cess

0.01

0.01

0.01

0.01

Net
Receivable

32780.59

32854.67

32891.71

32943.34

Net Profit

2581.13

2722.55

2793.26

2889.79

Profit %

8.55

9.04

9.28

9.62