Hi Friends,
Due to the positive feedback that I have received, I have decided to write my 2nd article. It is your support that has given me the confidence to go ahead with my 2nd article "Does a 3-in-one account make sense?"
A 3 in 1 savings account combines features of a savings account, online trading and a demat facility. As per SEBI guidelines, the shares are needed to be kept in electronic form in a demat account for buying and selling.This is one of the facilities which is extended by banks so that the transfer and trading of shares is almost seamless with minimal waste of time during the movement of your funds and shares. Even the orders are placed electronically so that the proceeds are instantly available since it is connected to your savings account.
Sounds amazing isn't it?
Let's analyse some facts:-
1) Brokerage is a fee which the broker charges on buying and selling of securities. Its a broker's income. So when you have a 3 in 1 savings account your brokerage plus the Securities Transaction tax, Service tax, Stamp Duty and Transaction charges comes to around 0.9%. Hence say you buy one share of State bank of India (Let us assume the CMP to be 2000 for simplicity), the total cost comes to around 2018 (2000+2000*.9/100). Now with a broker who is not a bank, let us assume the total cost apart from the CP is 0.5% . So in this case that share would cost 2010 (2000*.5/100+2000=2010). The difference in cost would be Rs 8 which might not sound quite high. But in case you buy around 100 shares of SBI you would have to pay Rs 800(8*100) extra. We are assuming that you would have a 3-in-1 savings account with a private bank where the Average Quarterly Balance is a minimum of Rs 10000. So just because you have an account with a bank, you are paying Rs 800 extra for 1 trade. Let us assume that on a day when Nifty shoots up you execute 5 such trades, then you pay up Rs 4000 extra.
These days all the brokers (which are not banks) have NEFT facility which allow pay-in and pay out of funds by directly connecting with your bank. So just for the namesake that you have a trading account with XYZ Bank and not XYZ Securities Ltd, are you willing to botch up Rs 4000 extra just because the Nifty has moved up by 100 points? Most of the times the banks don't divulge that they have tied up with a broker only to fleece the customers. The customers feel that if it is bank, it is more secure. Think about it!!!!
2) There are 2 kinds of investments in stocks. One which is for your daily and short term trading and the other which is for your long term investments. Now when you have your long term investments in your demat account where you have your trading account, chances are that you might sell a stock when it moves up 10% since it is very much visible and tempting and also because it is "seamless". You buy long term investments for your future (10 -15 years) but just because it is lying in a bank, your RM will make atleast 20 phone calls to you saying that Greece is about to default, S&P might downgrade India, UPA 2 is not functioning properly or FDI in retail has been put on the backburner. Since you would be doing something important, you might ask him to sell it to avoid getting harassed. His money is in and your long term investment has been converted to a short term profit or loss because of a Black Swan which has or hasn't yet happened.
To put things simply, make sure your long term investments are in a separate demat account away from your broker. Forget about them. They should be treated like your LIC policies or your PPF Account where you invest and forget. You would not mind filling up a delivery instruction slip to sell your shares once in 5 or 10 years if your long term investment remains a long term investment just like you need to surrender your LIC policy.It would more or less be "seamless." As Warren Buffett says I buy my long term investments on the assumption that they could shut the market for 10 years and I could forget about them.
Moreover these shares should be frozen in your demat account. Shares can only come into your demat account but for going out, you need to make a written application to your depository participant.
I hope you all like this article!!!! Looking forward to the comments and feedback on it.... Have a great weekend!!!!
Thank You!!!!!!!
Your friend forever,
Vivek
Due to the positive feedback that I have received, I have decided to write my 2nd article. It is your support that has given me the confidence to go ahead with my 2nd article "Does a 3-in-one account make sense?"
A 3 in 1 savings account combines features of a savings account, online trading and a demat facility. As per SEBI guidelines, the shares are needed to be kept in electronic form in a demat account for buying and selling.This is one of the facilities which is extended by banks so that the transfer and trading of shares is almost seamless with minimal waste of time during the movement of your funds and shares. Even the orders are placed electronically so that the proceeds are instantly available since it is connected to your savings account.
Sounds amazing isn't it?
Let's analyse some facts:-
1) Brokerage is a fee which the broker charges on buying and selling of securities. Its a broker's income. So when you have a 3 in 1 savings account your brokerage plus the Securities Transaction tax, Service tax, Stamp Duty and Transaction charges comes to around 0.9%. Hence say you buy one share of State bank of India (Let us assume the CMP to be 2000 for simplicity), the total cost comes to around 2018 (2000+2000*.9/100). Now with a broker who is not a bank, let us assume the total cost apart from the CP is 0.5% . So in this case that share would cost 2010 (2000*.5/100+2000=2010). The difference in cost would be Rs 8 which might not sound quite high. But in case you buy around 100 shares of SBI you would have to pay Rs 800(8*100) extra. We are assuming that you would have a 3-in-1 savings account with a private bank where the Average Quarterly Balance is a minimum of Rs 10000. So just because you have an account with a bank, you are paying Rs 800 extra for 1 trade. Let us assume that on a day when Nifty shoots up you execute 5 such trades, then you pay up Rs 4000 extra.
These days all the brokers (which are not banks) have NEFT facility which allow pay-in and pay out of funds by directly connecting with your bank. So just for the namesake that you have a trading account with XYZ Bank and not XYZ Securities Ltd, are you willing to botch up Rs 4000 extra just because the Nifty has moved up by 100 points? Most of the times the banks don't divulge that they have tied up with a broker only to fleece the customers. The customers feel that if it is bank, it is more secure. Think about it!!!!
2) There are 2 kinds of investments in stocks. One which is for your daily and short term trading and the other which is for your long term investments. Now when you have your long term investments in your demat account where you have your trading account, chances are that you might sell a stock when it moves up 10% since it is very much visible and tempting and also because it is "seamless". You buy long term investments for your future (10 -15 years) but just because it is lying in a bank, your RM will make atleast 20 phone calls to you saying that Greece is about to default, S&P might downgrade India, UPA 2 is not functioning properly or FDI in retail has been put on the backburner. Since you would be doing something important, you might ask him to sell it to avoid getting harassed. His money is in and your long term investment has been converted to a short term profit or loss because of a Black Swan which has or hasn't yet happened.
To put things simply, make sure your long term investments are in a separate demat account away from your broker. Forget about them. They should be treated like your LIC policies or your PPF Account where you invest and forget. You would not mind filling up a delivery instruction slip to sell your shares once in 5 or 10 years if your long term investment remains a long term investment just like you need to surrender your LIC policy.It would more or less be "seamless." As Warren Buffett says I buy my long term investments on the assumption that they could shut the market for 10 years and I could forget about them.
Moreover these shares should be frozen in your demat account. Shares can only come into your demat account but for going out, you need to make a written application to your depository participant.
I hope you all like this article!!!! Looking forward to the comments and feedback on it.... Have a great weekend!!!!
Thank You!!!!!!!
Your friend forever,
Vivek
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