Discount broking, which till recently was looked upon as an evolving industry in India, is now gaining pace and is soon expected to be on par with full-service broking before even gaining a majority share of the market.
Leading discount broking players are registering strong growth in client acquisition and overall business volumes and, according to industry players, the upcoming entry of Paytm Money is only expected to further drive the growth of this segment wherein investors stand to gain with almost nil to very low broking charges.
Some of the leading discount broking entities in India are Zerodha, 5Paisa, Upstox, Samco Securities and Trade Smart Online, among others. Incidentally, some of the full-service broking outfits have also launched discount broking schemes to attract clients looking for a pure trading platform sans any value-added services such as research and advisory.
In discount broking, the broker either does not charge any brokerage or charges a very nominal flat fee for every transaction. Full-service brokers charge a percentage of the trade value as their brokerage.
“With the growing customer base of discount brokers and the announced entry plan of Paytm Money, the low fixed rate broking model is poised to grow further,” said HDFC Securities in a report last week, adding that discount brokers are disrupting the equity broking business. “The market is about to get even more competitive as incumbents cut pricing further to defend their market share and new discount brokers enter, while older ones continue to gain market share. Pricing on the derivatives segment will continue to be very competitive,” it added.
Zerodha commands a 15% market share in volume, registering 2-3 million trades daily with nearly 9 lakh active clients. About 75% of Zerodha’s clients are less than 35 years of age. “The challenge before discount broking is to enhance the size of the market and get more millennials in the capital markets,” said Nithin Kamath, founder and CEO, Zerodha. “India has one of the largest millennial populations and there is huge scope to grow,” he added.
The average age of investors trading through Upstox, which has around one lakh active clients, is 29-30 years.
“We have a fairly young population on our platform. Discount broking could see the kind of traction that the U.S. market is seeing right now,” said Ravi Kumar, co-founder, Upstox.
In the U.S., discount brokerages hold over 60% share. Players peg the share of discount broking at 30% of total turnover in India.