Planning to invest in stock markets? Here's what you should know

There is always an undercurrent of hesitancy surrounding stock market investments. New investors are likely top avoid or at least postpone putting money in stocks as most of them feel the returns generated are often different from expected.

This can be blamed to a series of additional costs deducted from the profits before reaching the investor’s pocket. They are better known as stock market charges and often slips away from an investor’s mind while calculating an expected profit.

“I started my own lease business last year in the midst of Covid-19 pandemic. But since the business wasn’t consistent, I decided to invest in the stock market after much contemplation. However, it’s only after selling my first few shares did I realise about other costs that are deducted from my profits,” Parth Gurjar, a young investor from Bharuch, Gujarat said.

When you plan to buy or sell shares, it is usually carried out with a broker’s assistance. This transaction includes various costs that an investor must be well aware of to identify the actual cost of any purchase or selling of stock.

Brokerage charges

The investor is charged a brokerage fee by the stock broker in the form of a fixed percentage for any transaction carried by the investor. This percentage differs for intraday (single day holding period) and delivery-based trades (holding period is more than one day).

“The trading brokerage charges for intraday trades are usually between 0.02% and 0.08% of the trade size. For delivery-based trades, the broker charges in the share market range between 0.1% and 0.6% of the transaction size,” Edelweiss.in, an investment website, quoted on its website.

Securities Transaction Tax (STT) 

If you buy or sell stocks, derivatives and/or equity mutual funds through an Indian Securities Exchange like BSE or NSE, you’re liable to pay the STT for every transaction. This tax is deducted at the broker’s end by default.

The contract document signed by the investor and stock broker clearly mentions the STT rates applicable to various kinds of transactions. You must go through the contract carefully to understand how much money will be deducted on different kinds of transactions.

However, commodities, currencies and securities bought or sold outside the listed Indian exchanges are exempted from STT.

Goods and Services Tax (GST) & Stamp duty

The GST charged for stock market transactions is 18% of the brokerage fee. This includes 9% State GST and 9% Center GST.

Stamp duty charges vary across states and are applicable on the value of shares transferred in case of both buying and selling.

Transaction charges

A transaction fee is levied by the stock exchange as well and it remains same for both intraday and delivery trading.

According to Edelweiss.in, the transaction fee of NSE and BSE for the total turnover amount stands at 0.00325% and 0.00275% respectively.

At the same time, SEBI levies a turnover charge of 0.0002% for delivery futures, options trading, and equity intraday trading.

Depository participant charges

This charge is levied by your depository participant (your brokerage firm) for either of the two depositories in India – the Central Depository Services Limited or the National Securities Depository Limited. These charges are exclusive of the brokerage firm and do not reflect in the contract.

At Zerodha Broking, for example, DP charges are levied at Rs. 13.5 (+ 18% GST) per day per scrip(stock) for the stocks sold from your holdings.

Profit earned

The profit you earn at the end of any transaction would include all the above deductions. Therefore, while calculating an indicative profit amount, make sure to take all the above into consideration and invest accordingly.