Brokerages have begun handing out free demat and broking accounts in their bid to encourage equity investments among retail investors. Best & worst stocks of ’08

Though such a generous marketing idea increases the burden on account books of brokers by about Rs 300 per fresh account opened, it will go a long way to strengthening the retail investor base of brokers, industry sources opine.

A whole lot of brokers – including large ones like Nirmal Bang and India Infoline – are offering free demat and broking account. Investors need to only pay margin money (which also has been reduced, 40 – 60% in some cases) and registration charges (around Rs 500) while opening free demat and trading accounts.

“It is but very natural for brokers to reduce fresh account opening charges; investors are not very keen to trade in equities now. Several brokerages have gone one step ahead and announced cut in margin money (used to be in the range of Rs 5,000 to 10,000) as well. By doling out such freebies, brokers are spending about Rs 300 (per account opened) from their pockets,” said the retail equities head of Mumbai-based listed brokerage.

Though free demat and trading accounts are beneficial to investors, investment experts are already sounding the alert bugle. “Investors should look out for hidden charges or implied trade restrictions. In many cases, free accounts are offered for a specific period, say six months to one year. There are also brokerages that offer free demat and broking accounts, with exceptionally higher margin requirements. There could also be restrictions (in fineprint) with regards to how trades are done (online or call-based, cash market or F&O segment and number of trades done),” a Mumbai-based investment advisor said.

As per records with depositories, the number of fresh investor accounts has seen a near-60% drop when compared to accounts opened in January.

Precisely an year ago, when market was extremely bullish and there were a batch of hi-profile public issues waiting to hit the market, large-sized brokerages opened 6,000 to 10,000 fresh demat accounts on an average in a single day. Now, there are hardly 1,000 demat accounts opened in a single day, brokers said.

Source : Economic times

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