Is your brokerage closing?

As an investor, you have a month to shift; mutual fund investors can tag their units as direct investment

Earlier this month, HSBC announced it was shutting its retail broking arm, HSBC InvestDirect. This included retail securities broking, demat and distribution of insurance and mutual funds business. According to a newspaper report, India Infoline, which apparently owns the largest retail brokerage network, is also planning to gradually shut its retail broking division. Another newspaper report says about 500 stock brokers have shut shop so far this year, many of them retail.

In a note to its customers, HSBC has listed the timeline for the shutting of operations. Broking customers can place buy/sell instructions till November 22, 2013. From November 25 to December 3, only sell/square-off instructions against available securities/open positions would be accepted for clearance of dues/position or in relation to the closure of the account. Demat customers have been given time till December 3 to transfer securities from their accounts. Customers who have invested in mutual funds through the demat accounts have been given time till November 18 to either approach another broker or asset management companies to tag their mutual fund units as direct.

“The decision to provide notice to demat and broking customers in excess of the mandated 30 days is to provide operational convenience to the closure of consumer accounts,’’ HSBC said.

Operational convenience is one of the most important criteria a retail investor should look for while opening a demat and broking account, says Ritesh Dhandharia, chief executive, Ladderup Wealth Management. “A retail investor will be comfortable if all three platforms — broking account, demat account and bank account — are available at one place. The brokerage should be able to offer hassle-free account opening and operations,” he says.

What investors should look at is the brand name of the firm because these are intermediaries. In case of mutual fund investments, the investor issues the cheque in the name of the fund house, not in the name of the intermediary. But in case of a brokerage, the cheque is in the name of the individual broker or brokerage firm. So, the history of the operations of the firm is also important, Dhandharia adds.

To keep track of their mutual fund holdings in a consolidated manner, mutual fund investors can avail of services of online platforms. According to C R Chandrasekar, co-founder and chief executive, FundsIndia.com, while looking for a new brokerage firm, investors should check the fees charged by the brokerage firm and see if the services are worth the fees. “The fees may vary, depending on the services offered. If the firm offers value-added services, they may charge higher fees. It also depends on the client’s assets under management (AUM). If you have a large AUM, you could even try and negotiate for a lower brokerage fee,” he says. Retail investors should not worry about whether the firm is providing technical analysis or research reports, since their strategy should be ‘buy and hold’. Ideally, they should stay invested for five years. Due to the same reason, if the relationship manager of any brokerage asks you to churn your portfolio, it should raise a red flag — you must avoid such brokerages, Dhandharia says.