Among the many types of trading techniques, one particular strategy seems to be highly popular. It goes by the name, delivery trading. It involves the buying and selling of securities to take delivery instantly after the transaction. It is a pretty common type of trading that focuses on long-term investing. Investors hold their assets for long durations. Unlike some other techniques like intraday trading, delivery trading is a low-risk trading strategy. The main source of profits is the growth in asset prices over a period of time. Value investing is its core principle. However, before you start investing, let us mention that delivery trading often involves several charges. Brokerage houses, providing the facility, levy various kinds of charges.
It is better that an investor has a proper knowledge regarding the trading costs.Take a look at these charges discussed below.
Delivery trading brokerage is also often referred to as brokerage for delivery. Brokerage is a fee levied by the stockbroker on every type of trading strategy. It is essentially the fee paid to the broker for facilitating stock market trading.We can also call it the charges paid to the stockbroker fo the execution of our trades. It goes directly to the stockbroker. The brokerage fee generally varies from one brokerage firm to another . Brokerage houses fix their brokerage charges, according to their business models.Individuals must select a suitable brokerage firm that provides the best services at reasonable prices Brokerage fees usually make up the largest share of delivery trading charges.
Here, it is pertinent to note that brokerage charges are not the only fee an investor has to pay. Although, majority of the trading charges consist of brokerage charges, you also have to bear other kinds of costs. While calculating the break-even prices of delivery trades, we have to consider all these charges along with the delivery brokerage fee. The spectrum of these statutory charges includes Securities Transaction Tax (STT), stamp duty, turnover tax, GST, exchange fees etc. These charges also form a significant part of the trading costs an investor has to pay.
Security Transaction Tax (STT)
It is probably the second largest charge after brokerage fees. The security transaction tax is a two way charge. It means the fee is applicable to both the buyer and the seller.Both parties involved in a transaction must pay a predetermined fee. The STT for delivery trading is generally around 0.1% of the total value of a transaction, on both sides of trading.
Share Certificates are instruments. All financial instruments require stamping. So, a stamp duty is applied on the value of the shares transferred. It gets collected through the stock exchange. It is applicable to every successive allotment of shares. In our country, stamp duty was a state subject. This means that the authority to fix stamp duties lies with the state governments. However, the new rules made stamp duty uniform in all states. The new regulations went into effect on July 1, 2020. Currently, investors must pay 0.015% as stamp duty on equity delivery trades.
The stock exchanges charge transaction fees . The fee is applicable on both sides of a trade, i.e. buying and selling. The National Stock Exchange (NSE) levies a charge of 0.00325% of the total turnover value as a transaction fee on equity delivery trading. On the other hand, the Bombay Stock Exchange (BSE) levies a 0.003% fee of total turnover on equity delivery.
SEBI Turnover Charges
The Securities and Exchange Board of India (SEBI), is the share market regulator. It is responsible for making rules for the smooth functioning of the financial market. SEBI levies a turnover fee on both the buying and selling of stock market assets. It is a fixed rate of Rs. 10 per crore of total turnover value. Mostly, the brokerage firms pay the turnover fee. However, they levy a small fee in its name, to make up for the costs incurred by them.
In addition, to all the types of charges mentioned until now, investors have to pay GST on all security transactions. GST, as you might already be aware, is a common norm these days. The government of India applies it on all goods and services according to the tax bracket they lie in. In delivery trading, there is 18% GST on the total brokerage charges. So, the lower the brokerage fee, the better it is for investors. Some reputed firms, like Share India, do provide affordable trading plans. The well-known brokerage house offers different plans based on market segments. In fact, there are no charges for equity delivery. Investors can choose a suitable plan according to their trading needs and objectives.