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proof of tq1

The document discusses the range of services offered by brokers, including portfolio management, mutual funds, and life insurance, as well as the types of trading accounts available. It highlights the potential conflicts of interest brokers may have, as they earn commissions based on trading activity and may encourage excessive trading. Additionally, it provides guidelines for selecting a broker, emphasizing the importance of being cautious and aware of the broker's motivations.

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h.hariharan
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3 views

proof of tq1

The document discusses the range of services offered by brokers, including portfolio management, mutual funds, and life insurance, as well as the types of trading accounts available. It highlights the potential conflicts of interest brokers may have, as they earn commissions based on trading activity and may encourage excessive trading. Additionally, it provides guidelines for selecting a broker, emphasizing the importance of being cautious and aware of the broker's motivations.

Uploaded by

h.hariharan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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range of services, including portfolio management services, where the firm

manages the money on behalf of the investors. They also sell Mutual Funds
and Life Insurance. The primary job of a broker is to open a trading account
along with a DP account through which an investor can buy or sell shares.
There are two types of trading accounts.
a) Offline Account
b) Online Account
In the case of an offline account, the orders are placed over phone and the
payment is settled by cheque. In some cases, the broker insists on advance
payment.
In the case of an on-line account, the orders are placed by the investor
directly through the internet, and payment is effected through an on-line
payment gateway. The investor’s account is updated immediately.
The broker also provides finance to the investors/traders to enable
traders/investors to buy on margin. This enables the broker to increase his
transactions and therefore, his commissions. This is now restricted by SEBI
to a limited period, to prevent misuse of investors' funds.
The more the investor churns his portfolio, more commissions his brokers
make. Therefore, the brokerage house gives its clients a series of
recommendations daily for the client to trade. Most of these
recommendations are of short term in nature and have a definite exit and
entry point. The investor must remember at all times that the broker is there
to make maximum commissions. Any recommendation that he makes is
with an eye on the commissions that it would yield. Any investment idea
even from the greatest investment guru will have a gestation period before
the idea fully plays out. An investor trading on margin must have the
resources to wait patiently for the results. Brokers always encourage you to
be hyper active with your investments. It is quite possible that one would
lose most of the trading gains to commissions and brokerages if he is not
careful. An Investor may constantly lose money and blames the broker and
keep changing them.

There are some simple rules that one can follow while choosing a broker.
1. Do not open an account with a broker who sells accounts or
financial services from a stall in an exhibition or a multiplex or a
shopping center. The most inexperienced people are assigned these
beats to get experience. There is no certification required to be a
qualified financial advisor in India today.
2. Remember that any recommendation that a broker makes, gives
him the highest commission. So a broker will encourage you to churn
your portfolio. He will recommend you to invest in Portfolio
Management Schemes that will earn his company the highest
possible Management Fee. In the case of investment it is always
“Buyers Beware".
3. A friend of mine went to a new broker after a bad experience
with his previous broker. The choice of a new broker was based on a
recommendation from another friend. He was interrupted by a
telephone call in which the prospect of a development financial
institution doing a stake sale was discussed. The price of a stock
went up from Rs.20 to Rs.100. After the call was completed the
broker told my friend that it was a sure winner and all his clients
were buying in. The lenders to the company were converting their
debt into equity at a higher price. The brokerage was taking position
on its proprietary account. My friend promptly took a futures
position for around Rs.2 Lakhs. The takeover bid was rejected by

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