Taking stock, virtually

When 33-year-old Prashant Shivram, a Mumbai-based marketing consultant, shifted from offline trading to online two years back, it was the convenience of trading from his home that got him hooked to online investing. “It’s far more real-time than offline trading. Plus, you can see your deliveries coming through and for those who indulge in day trading, the online model holds a definite advantage for obvious reasons,” explains Shivram.

Shivram, of course, has no taste for day trading, but that in no way diminishes the advantages of online trading. “The very nature of the offline model makes customers dependent on dealers who they have to call to place orders—this means that as a customer you might miss out on a price point of a particular stock in the interregnum between the placing of the order and the delivery,” says Amit Golia, Senior Vice President and Head of Retail, Motilal Oswal Securities. An online brokerage, he says, empowers customers to operate in real time and more importantly, to be on his own.

Another major advantage that online broking holds over its offline counterpart is the power of informed decisions that it affords. “There are plenty of research-backed tools available online to help customers take an informed decision on their stock choice—helped, of course, by the constant updates on real-time trading calls,” says Vinay Agrawal, Executive Director, E-Commerce, Angel Broking, who also doesn’t discount the privacy factor inherent in online trading.

It isn’t just the customer who stands to gain more by opting for an online brokerage. From an organisational perspective, too, an online model works better as it is more scaleable vis-à-vis an offline brokerage whose maximum capacity will be not more than 200-300 customers.

Net, set, Go Pros Real-time stock quotes Independence of investing Scaleable for an organisation Better information flows No preferential treatment for large/HNI clients Cons No human interface/advice Dependent on net connectivity Investors must be net-savy

Prasanth Prabhakaran, Senior Vice President, Kotak Securities, who differentiates between the two as independent investing and assisted investing, feels that online brokerage models are perfect for those who have the time to go through market research reports, don’t need anyone to advise them on their stock portfolio and most importantly, have a high-risk appetite—which, he clarifies, is different from having high-risk capital.

However, this doesn’t mean that offline brokerages are to be written off. Brokers say offline trading has its own followers—especially people who don’t feel confident about taking investment decisions on their own and who would like to discuss their concerns with a broker face-toface and then arrive at a decision.

Adds Prabhakaran: “For people with a large investment corpus—say about Rs 5-10 crore—it becomes imperative to provide personalised service so as to reassure them that they are putting their eggs in the right basket.”

This implies that customers with a large investment appetite are definitely better served through an offline brokerage compared to small retail investors who may not get the same kind of time and attention since brokers, too, need bigger clients. The biggest advantage with offline brokerages lies in their accessibility while travelling—something that even Shivram concedes, saying that he just has to make a phone call to get his work done when he goes out of town. “Besides, when the net connection is down—which is not uncommon in India—it’s a telephone call to the offline that will save your day,” says Prabhakaran.

Statistically, the argument for online and offline can be sliced both ways. Compared to 2004, when internet trades comprised just 2 per cent of NSE volumes, in 2007, the figure was at 24 per cent. While that still leaves a huge chunk—76 per cent—to offline brokerages, the rate of growth is pretty neat, feels Prabhakaran. “In the US, the share of internet trading grew from 15 per cent in the early ’90s to 52 per cent now. The Indian market has witnessed a faster growth in three years,” he observes.

What it costs

Helping hand Pros Reassurance of professional advice and human interface Better client servicing, especially for HNIs and large clients Can be done through phone, especially when travelling Brokerage rates can be negotiated Cons Absence of real-time information Possibility of communication error over phone Retail investor may not get broker's attention Model not scaleable beyond a certain point

Angel Broking’s Agrawal says there’s not much to choose in terms of charges: 0.5 per cent for delivery and 0.1 per cent for trading. Golia, however, does admit to a difference between online and offline models. “At Motilal Oswal, we charge 0.4 per cent for online and 0.5 per cent for offline—both charges for deliveries. Offline charges generally tend to be higher due to certain add-on costs like personal financial advice,” he elaborates.

Kotak Securities, according to Prabhakaran, charges 0.59 per cent for delivery in the online model and 0.5 per cent for the offline. Depending on the volumes, brokerage charges in both online and offline can be lower.

Between the two

So, does that mean that offline brokerages are becoming redundant? And, more importantly, what should a retail investor opt for? While no one really believes that online trading will make its offline counterpart obsolete—given the levels of net penetration in the country—choosing between the two depends on the investor.

“If a customer has the time and resources to study and understand the market— and has absolute confidence in his own portfolio decisions, online trading is apt for him. However, if he feels the need for guidance, or has constraints in terms of time and access, it is better to opt for offline trading and graduate to online trading in future,” feels Agrawal. Besides, says Golia, while the online model works best for the retail investor— compared to an HNI—it always pays to look at what kind of offline assistance is available. “An online model with some human interface not only reinforces the customer’s belief in the financial advice but also comes in handy when the servers are down,” he says.