Discount brokerage answer to broad-basing retail participation in stock markets: 5paisa.com CEO 

Prakarsh Gagdani

Despite a stellar run of the Indian stock markets, retail participation continues to remain small and skewed as compared to global markets.  Only 2% of India’s population participates in stock markets and top cities still attract most of the retail (read cash segment) participation, indicating lack of broad-based participation. Mumbai alone contributes to around 60 per cent of cash market trades for both the premier stock exchanges NSE and BSE.

While financial illiteracy and lack of faith are thought to be two primary reasons for low retail presence, trust factor, lengthy and complicated procedures and physical distance from stock markets are also big contributors for non-participation of retail investors.

Here is where discount brokerages are stepping in to address some of the problems that have so far deterred stock market participants by bringing in convenience and cost-effectiveness even as stock exchanges have been focussing on of financial literacy and introducing technological advancements to for faster trades.

Since their entry into the Indian market in 2010,  discount brokers such as 5paisa.com, Zerodha, etc not only facilitated online trading of shares and commodities but they have also brought in much convenience and cost effectiveness to enable participation of retail clients from every nook and corner of the country.

According to Mr. Prakarsh Gagdani, CEO, 5paisa.com, client convenience and cost optimisation are the primary requirements for broad-basing retail participation. “Ease of account opening is a paramount need for the industry where a mere 3-5% of the population have demat accounts. We have ensured that with proper documentation, a client can open his account in just one hour,” he says.

Cost of transaction is also a vital influencer for investors. Discount brokerages such as 5paisa offer 60% – 80% cheaper fees than conventional brokers. Since the transaction fee is the same irrespective of the size of a transaction, this has eliminated the element of greed from the investment advice given by the brokerage firms.

“We enable its clients to participate in the stock market at a very cost-effective rate,” says Mr. Gagdani, adding that the flat cost per transaction, irrespective of size is an attractive proposition. “This also brings in a lot of transparency.”

Brokerages are also introducing technological innovations to make investment decisions and implementation easy and hassle-free.

For instance 5Paisa has introduced an automated investor advisory system – Robo Advisory – which provides personalised financial solutions using cutting-edge technology, artificial intelligence.

Such innovative offerings are the reason for the fast growth of discount brokerage in India since their advent in 2010. However, discount broking is still at nascent stage in our country compared to developed markets. In the US equity market, retail is 40% of total volumes and discount broking stands 70% of the retail volumes, in India, discount broking is barely at 7-8% of the total volume.

Clearly there is a lot of scope for discount brokerage to grow keeping in pace with the growth of retail participation.