The Indian financial markets have undergone a significant transformation with the advent of digitization, and the stock broking industry has been no exception. The emergence of discount brokers has revolutionized the industry, and investors now have access to a wide range of services at lower costs. According to data from depositories NSDL and CDSL, the number of Demat accounts opened by Indian investors in the financial year 2022 reached a staggering 34.6M, which is almost three times higher than the previous fiscal year's figure of 14.2M. The surge in the number of Demat accounts and the increasing interest of traders in online trading is indicative of the shift within the industry towards newer technology.
India's discount brokerage industry started gaining traction in the early 2010s with the emergence of online discount trading platforms. Zerodha became the first discount broker in India, offering flat fee trading services. Since then, several others have entered the market.
In just a decade, there has been a significant shift in the industry landscape. As of Feb 2023, the discount brokers have gained a larger market share of 59% in terms of active clients, with Zerodha leading the list with 19%. This upward trend is a promising sign of growing trader enthusiasm toward discount brokerage platforms.
Full-service brokers are focused on providing end-to-end, personalized brokerage services to clients such as high-net-worth individuals (HNIs) and institutional investors who are willing to pay a premium. In contrast, discount brokerage firms primarily cater to individual investors who want a cost-effective way to trade or invest with independent research. These investors user-friendly platforms to make their own investments.
The rise of discount broking can be attributed to various factors. The broking industry was not readily accessible to retail customers, and people were hesitant to invest due to limited knowledge. During this time, Zerodha launched Varsity, a platform dedicated to educating viewers on stock market and investing. As the first player to introduce such an initiative, Zerodha gained a significant share of retail investors, leveraging its first-mover advantage. Discount brokerages offer a self-directed platform that is specifically designed to allow traders to operate with minimal guidance. Their websites are thoughtfully crafted to provide a user-friendly experience that enables traders to quickly and effortlessly execute trades. As a result, the process of trading is streamlined and expedited.
Discount brokerage platforms are popular among traders due to the low brokerage charged, which can be levied through the prevalent fixed price per trade model, where traders are charged a fixed rate ranging from INR 9 to INR 20 per trade regardless of its size, and the recently emerging fixed monthly charge model, where traders pay a fixed monthly fee regardless of the number of trades or exchanges used, making it possible for traders to perform unlimited trades without any additional costs.
As discount brokers gain popularity, they are expanding their product offerings to include diverse investment options such as mutual funds, US stocks, bonds, ETFs, etc. The aim is to become a comprehensive platform for all investment needs, providing a one-stop shop for customers. As India's economy grows, and more investors enter the market, discount brokers will likely continue to evolve and adapt to meet their changing demands. It is essential for discount brokers to continue providing innovative services and products to stay competitive in the ever-changing investment landscape.