How to Start a Brokerage Firm in India

People consistently seek investments that can offer them better returns. The stock market has consistently offered better returns through its numerous financial instruments. Owing to the better returns offered by the stock market, it is witnessing unprecedented demand where new investors are opening Demat accounts in record-breaking numbers.

Since the demand is high, it has started a chain reaction where the need for brokerage firms in India is increasing by a huge margin. As the stock market has shifted to a digital trading system, it is an ideal time to start a brokerage firm in India. However, if you want to start a brokerage firm, you must know how to start a brokerage firm in India. But before you know how to start a brokerage firm in India, you must understand all about the brokerage business.

What Is a Brokerage Firm?

A brokerage firm is simply a place where investors and traders go to buy and sell stocks. The firm acts as a middleman between buyers and sellers and provides a trading platform for everyone. It charges a commission on these transactions. Every time an investor buys a stock, a transaction fee is charged.

You can also start a share broking franchise business (a sub-broker franchise) and give your company’s franchise to small and medium sub-brokers.

What Is a Sub Broker Franchise?

Knowing what is a brokerage firm is the first step toward understanding how to start a brokerage firm in India. However, the brokerage business also includes a sub-business opportunity known as a sub-broking franchise where entities assist brokerage firms in finding new customers and earning a commission in return. You can also start a share broking franchise business (a sub-broker franchiseand give your company’s franchise to small and medium sub-brokers.

Earlier, brokerage services were only available at the physical offices of firms. It was when the Indian financial market followed an open outcry system. The investors had to be present physically at the stock exchanges to buy and sell stocks. The process was more based on luck as everyone shouted to place their orders. However, SEBI, in 1993 started the shift towards digital trading where it was mandatory to open a Demat account to hold the shares virtually. The circular started a digital revolution and resulted in the introduction of online brokerage firms.

To add the entities to create a brokerage business, SEBI created rules and regulations on how to open brokerage firms in India. By starting a brokerage firm, entities can onboard customers who want to open a Demat account and trade in included financial instruments. A brokerage firm assists its customers to buy and sell securities effectively, manage their Demat accounts and ensure their transactions are completed.

Types of Brokerage Firms

  • Full-Service Brokers:

    These stockbrokers provide comprehensive services to clients, including providing advisory assistance. They can help an investor gain insight into investment opportunities. Typically, their brokerage fees are based on the total amount of executed trades. These are generally well-established market players, with a range of network offices/branches across the country.
  • Discount Brokers:

    They charge comparatively lower fees as compared to full-service brokers. Their services don’t include advisory assistance or market research to help clients zero in on a suitable investment opportunity. Usually, they charge a flat fee for undertaking stock market transactions.
  • Brokers Charging Flat Brokerage:

    These types of stockbrokers have gained popularity because of the increasing use of digital technology in trading. They are a mix of both full-service and discount stockbrokers, charging a flat rate brokerage fee.
   

What Is a Sub Broker Franchise?

Tips For Starting a Share Broking Franchise Business In India

A sub-broker is an agent of a broker, working with the client on their behalf. They act as a link between the stockbroker and the client. A stockbroker entrusts the sub-broker with multiple responsibilities, like sourcing clients, providing services and client management. Sub-brokers receive a portion of the fees collected by the stockbroker of the broking franchise. The broking firm can have a wide network of operations across the country via different sub-brokers, who identify and acquire new clients for the stockbroker.

A broking franchise gives the franchise to smaller brokers to expand its clientele and make more money through the sub-brokers. Sub brokers are like freelancers as they work with a certain degree of autonomy but utilise the brand name and software of the main broker franchise. The brokerage earned from clients (traders) is shared between the franchise and the sub-broker. Hence, the sub-broking franchise is also a vital part of understanding how to open a brokerage firm in India.

Knowing how to open a brokerage firm needs extensive knowledge about the financial market. Starting a brokerage firm involves a lot of strategy, documentation, and patience. Here are some essential steps to understand the process of starting a brokerage business in India in detail:

  1. Calculate Expenses

    This step involves an equal amount of planning and calculation. Once you make a step-by-step plan of the entire process, right from registration to the final opening of your business, calculate the approximate cost of each step. Take into account current costs of all aspects as well as expected spikes in costs in the near future. These will include, for example, a base minimum capital deposit paid to the stock exchange as a deposit as part of the registration process with the exchange. The amount of these costs depends on your business specifics.

  2. Choose Your Target Market

    The process of how to open a brokerage firm in India can lean toward different types of investors. Your share broking franchise business could be a luxurious venture for ultra-high net worth individuals or even a small one that guides and assists new investors by also acting as a business financial advisor. A lot of brokerage firms offer advisory services these days. They not only buy and sell shares for their clients but also offer overall financial advice in terms of where to invest, how much to invest, where to save, etc. Your business financial advisor services need to be strategised as per your target market and their level of knowledge about trading.

  3. Determine Your Revenues

    The process of starting your own brokerage firm also includes determining the revenues. As per your target market and your expenses, you will be able to determine how much you can charge your clients. You will need to set charges for both trading and financial advice, or you can even choose to offer free financial advice like a lot of new brokerage firms do in India currently. You can also have a model wherein you provide special financial advisory services for a charge.

  4. Find Out How To Maximize Your Revenue

    One of the most important factors in the process of knowing how to open a brokerage firm in India is to know how you can maximise your revenues. Find out what makes your brokerage firm different from the scores of others serving the same target audience. Would you specialise in one type of financial advice? You can charge extra for your speciality as a business financial advisor. Think about how long it would take you to increase brokerage charges too.

  5. Get An Office Space

    Another essential is to get an office space that is enough for the number of employees you plan to hire in your initial year. The office space should also include various equipment such as computers, wifi etc to ensure you can work effectively and assist the clients you onboard. Once you upscale, you will also have more funds to move to a bigger space

  6. Cover All Legal Bases

    For a brokerage firm, there are some specific registration and legal formalities. The SEBI (Securities and Exchange Board of India) issues a registration certificate. You will also need approval from stock exchanges and clearing corporations. Once you meet SEBI’s ‘Fit and Proper’ criteria, you can apply to stock exchanges via SEBI and obtain a certificate with your unique registration number. You will also need to keep track of all penalties and rules binding upon your organisation and employees.

  7. Name Your Company

    Deciding a suitable name for your company is a creative as well as a logical process. The name should reflect your company’s vision and suit its long-term brand identity. It should also be short and simple enough for people to remember and identify. Plus, you will have to check some records to make sure that the name won’t fall into legal trouble. These include – State business records – Trademark records – Social media research – Web domain availability

Conclusion

A broking business is one of the most in-demand businesses at a time when the Indian financial market is adding a huge number of customers. As the investment amount is on the rise, starting a brokerage firm is one of the best decisions you can make. It will allow you to earn substantial brokerage through every completed order of the clients you onboard in your brokerage firm.

Now that you know how to start a brokerage firm in India, you are well equipped to start a broking business and start your professional journey in the stock market. However, there are risks involved in every business, and it is important to be wary of them. But keeping a positive mindset and an aware sight is what will make all the difference as an entrepreneur. You can also partner with organisations that ease the process for you, like India Infoline. This would benefit you as they have existing expertise and experience in the field.

IIFL offers one of the best sub-broker franchise models in the entire Indian stockbroking scene. A strong brand name, an intuitive tab-based advisory platform, cutting-edge trading platforms, and best-in-class research reports are some of the unique features that you get to experience by partnering with IIFL.

Earn Upto Rs.1 Lakh* Per Month

Frequently Asked Questions

Ans: You can start a brokerage firm in India by calculating the expenses, choosing your target audience, determining your revenues, getting an office space, covering legal procedures and naming the company.

Ans: All brokerage firms charge their clients based on a per order basis. However, depending on the type of customers and the services rendered, you can charge your clients as per your business model.

Ans: Yes, IIFL offers one of the best sub-broker franchise models. By choosing IIFL as a business partner, you also get to enjoy several other benefits such as a high revenue-sharing model, personal assistance, personalised branding, investor awareness programs, and access to a robust back-office infrastructure and risk management systems. As a sub-broker with IIFL, you also get access to an extensive product range that includes not only equities and mutual funds but also NCDs, bonds, and other insurance products.

The cost of opening a stock broking firm depends on the scale of operations that you are looking to start with. You will have to become member of stock exchanges such as NSE or BSE. Membership fee of these exchanges is around Rs 5 lakhs. You will have to invest in setting up some kind of IT infrastructure such as personal computers, internet connection etc. You may also have to invest in marketing.

  • Research and Planning Conduct deep market research to understand the industry and competition. Develop a comprehensive business plan that perfectly outlines your goals, target market, and services.
  • Regulatory Compliance Obtain necessary licenses and registrations from regulatory authorities. Ensure compliance with all financial regulations and industry standards.
  • Build a Team Hire experienced professionals with expertise in broking and finance. Train your team on regulatory requirements and company policies.
  • Marketing and Networking Develop a marketing strategy to attract clients. Network with major investors and build relationships with other professionals in the industry.

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