WHAT REFERS TO THE BROKERAGE ACCOUNT AND HOW CAN YOU OPEN IT?

For those who have decided to invest their hard-earned money in stocks and commodities, opening a brokerage account is going to be your first step to entering the investment market. An investment account is completely different from the bank account (where the regular monetary transaction takes place).

When you open an investment account, you become eligible to purchase stocks, mutual funds, and bonds. You cannot purchase stocks or other investment products without opening a valid brokerage account.

There are different types of brokerage accounts on the market. While some offer costlier yet full brokerage services, others charge a reasonable rate for high-quality brokerage service.

In this post, we’ll walk you through the meaning of the brokerage account and the steps to open one. Let’s start with the meaning.

What is a Brokerage Account?

A brokerage account is used to purchase investment products. You can open this account with a licensed brokerage firm or an investment company. As soon as your account is approved and your deposit the money, you can purchase stocks and other investment products.

You can use the deposited money to purchase investment. Once you purchase the investment, you become the owner of it. The purchased stocks can be sold anytime. In simple terms, the broker acts as the middleman who connects you to the investment companies and provides a platform for stock trading.

Brokerage account will allow you to purchase different types of investment products ranging from stocks to mutual bonds.

How Do Brokerage Accounts Work?

Mostly, the brokerage firm or investment company will allow you to open a trading account easily. To fund this account, you need to deposit money from your savings account to the brokerage account.

The process might take up to weeks. The user can switch their brokerage firms if they are unhappy with the current company. You can even transfer all your investments and money from one brokerage account to another.

Users don’t need a significant amount of money to create an account with a reputable brokerage firm. In fact, some companies allow you to get your brokerage account set up without an initial deposit. But, you will need to deposit money for purchasing investments.

Make sure that the brokerage account does not involve any fee. Even though these firms simplify your investment process and provide a flexible trading service, they charge no fee. Moreover, you can open as many brokerage accounts as you want.

Brokerage Account vs. Retirement Accounts – Which One you Must Choose?

A typical brokerage account is also known as a taxable account. That said, you don’t get to receive any tax benefits from such accounts.

Mostly, the tax is charged on your yearly profits. As an advantage, you get to withdraw your earnings anytime you want. Plus, there is no limit on buying investments.

However, a taxable account isn’t a suitable option for individuals who are investing in their retirement. There’s a special retirement account such as IRA, which is mainly developed to benefit the user whose sole purpose of investment is retirement savings. These are tax-saving accounts. But, they also come with certain limitations such as how much you can deposit every year, when you can pull out the money, etc.

You will want to reconsider your choice if you are opening an account for retirement purposes. Since the IRA account offers a tax-saving advantage, it can be the best option for investors.

At the same time, your money will be invested for several years (5-10). So, choose wisely.

How Can You Pick the Perfect Brokerage Account Platform?

Now that you have decided which account amongst – taxable brokerage and Retirement account – you want to open, it is time to pick the service provider. Currently, Robo-advisors and online brokers are in high demand. Let’s see which one can fit your requirements.

  • Online Brokerage Account

Do you want to invest and handle your money on your own? If yes, then an online brokerage account can be a perfect choice.

By opening an investment account with a licensed brokerage firm, you can purchase and sell investment products through their website.

  • Managed Brokerage Account

Managed investment accounts either involve a human advisor or a Robo-advisor. It is a perfect option for beginners who are not familiar with brokerage platforms and investment products. The Robo-advisors are less costly than a human investment manager.

These companies use advanced computer algorithms to pick the right investment option considering your risk portfolio and investment objectives.

How to Open a Brokerage Account?

Opening a brokerage account is as simple as completing a short application form (which takes around 10-15 minutes to complete). As soon as your investment account starts, you can fund it by depositing a certain amount of money.

You don’t have to worry about the account opening or funding process since the broker will guide you throughout the process. Once you have deposited the money, you can purchase investments.

While opening an account, the firm asks the user if they want to stick to the cash account or open a margin account. A margin account may seem a reliable option, however, it comes with its share of risks.

While it lets the user borrow a certain amount of money from the broker to purchase stocks or mutual funds, the user might end up paying a heavy interest rate or broker fee in return. That being said, it is best to choose the cash account (especially, if you are new to the investment world).

Are You Ready to Invest?

The stock market might be the most unpredictable markets. But, it gives you the long-term benefit by multiplying your investment in a short period. Not everyone is ready to invest a significant portion of their earnings for retirement life.

After all, the stock market is all about uncertainty and risks. Some people want to have cash in hand to stay prepared for the unforeseen expenses. Sure, you must have some cash in hand.

Note that stock investment is a viable option for those who are ready to bear the risk and secure their financial future or life after retirement.

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It is, therefore, important to learn both the pros and cons of intraday trading to get a better idea of how this market works and how exactly you can grow your money. In this post, we will walk you through a few advantages and disadvantages of intraday trading. So, keep reading to learn more.

• Beware of fixed/guaranteed/regular returns/ capital protection schemes. Brokers or their authorized persons or any of their associates are not authorized to offer fixed/guaranteed/regular returns/ capital protection on your investment or authorized to enter into any loan agreement with you to pay interest on the funds offered by you. Please note that in case of default of a member claim for funds or securities given to the broker under any arrangement/ agreement of indicative return will not be accepted by the relevant Committee of the Exchange as per the approved norms.
• Ensure that pay-out of funds/securities is received in your account within 1 working day from the date of pay-out.
• Be careful while executing the PoA (Power of Attorney) – specify all the rights that the stock broker can exercise and timeframe for which PoA is valid. It may be noted that PoA is not a mandatory requirement as per SEBI / Exchanges.
• Register for online applications viz Speed-e and Easiest provided by Depositories for online delivery of securities as an alternative to PoA.

• Do not keep funds idle with the Stock Broker. Please note that your stock broker has to return the credit balance lying with them, within three working days in case you have not done any transaction within last 30 calendar days. Please note that in case of default of a Member, claim for funds and securities, without any transaction on the exchange will not be accepted by the relevant Committee of the Exchange as per the approved norms.

• Check the frequency of accounts settlement opted for. If you have opted for running account, please ensure that your broker settles your account and, in any case, not later than once in 90 days (or 30 days if you have opted for 30 days settlement). In case of declaration of trading member as defaulter, the claims of clients against such defaulter member would be subject to norms for eligibility of claims for compensation from IPF to the clients of the defaulter member. These norms are available on Exchange website at following link: NSE, MCX

• Brokers are not permitted to accept transfer of securities as margin. Securities offered as margin/ collateral MUST remain in the account of the client and can be pledged to the broker only by way of ‘margin pledge’, created in the Depository system. Clients are not permitted to place any securities with the broker or associate of the broker or authorized person of the broker for any reason. Broker can take securities belonging to clients only for settlement of securities sold by the client.

• Always keep your contact details viz. Mobile number/Email ID updated with the stock broker. Email and mobile number is mandatory and you must provide the same to your broker for updation in Exchange records. You must immediately take up the matter with Stock Broker/Exchange if you are not receiving the messages from Exchange/Depositories regularly.

• Don’t ignore any emails/SMSs received from the Exchange for trades done by you. Verify the same with the Contract notes/Statement of accounts received from your broker and report discrepancy, if any, to your broker in writing immediately and if the Stock Broker does not respond, please take this up with the Exchange/Depositories forthwith.

• Check messages sent by Exchanges on a weekly basis regarding funds and securities balances reported by the trading member, compare it with the weekly statement of account sent by broker and immediately raise a concern to the exchange if you notice a discrepancy.

• Please do not transfer funds, for the purposes of trading to anyone, including an authorized person or an associate of the broker, other than a SEBI registered Stock broker.

• Do not deal with unregistered intermediaries (who are not registered with SEBI/Exchanges).

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