As retail investors take to stocks from Tokyo to Toronto, India is taking a leaf out of the Robinhood playbook: The US digital trading platform is distributing stocks worth up to $200 for opening a new account, and comparable offers in Mumbai are helping add to the investor base. India has added 10.5 million new accounts between April 2020 and February 2021.
A campaign by Angel Broking offers Rs 250 and gift vouchers up to Rs 5,000 for opening a new demat account. It also offers existing clients a smartphone for bringing 300 new demat accounts and a Thailand trip for every 1,000 accounts.
Motilal Oswal Financial Services gives Rs 3,000 worth of discount vouchers and Rs 1,000 worth of ME-Gold, a digital gold product for every account opening. Edelweiss Securities is offering Rs 500 worth of shopping vouchers for each demat account and Rs 1,000 additional for three value accounts. Axis Securities offers Rs 500 cashback on brokerage with every account. ICICI Direct pays Rs 500 for every successful referral while Upstox pays Rs 300.
Some brokers share revenue out of the brokerage paid by the client being referred. Sharekhan offers 15 per cent of every referred friend’s brokerage for 1 year. India’s largest broking firm Zerodha, under its referral programme, offers 10 per cent of the brokerage paid by anyone the client has referred.
It’s a global practice to offer various incentives to prospective clients, said the CEO of a large broking firm.
“Globally, most of the big broking firms reward new clients with various promotions, deals, referral bonuses and sign-up bonuses. Depending on how much money you have to invest, foreign brokers offer to deposit a cash bonus into a client account, give them free stock or provide free investing for a certain period,” he added.
To safeguard the interest of the investors and streamline the selling practices of brokers, the National Stock Exchange (NSE) issued a circular on incentives and referral schemes in December 2019 that says the rate of incentive should be flat and a single rate should be applied for all persons referring the clients while the referring person cannot undertake any form of selling or advisory activities. He cannot manage the portfolio of any person being referred.
Also, NSE banned any financial transaction between the referred client and the referring person. NSE in its December 2019 circular said that brokers should frame an internal policy for deciding the quantum or maximum limit on the incentive to be provided to the referring person. Such a policy should be approved by the board.