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Revealed
India's Third Giant Leap

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Will brokers become dinosaurs?
Wed, 3 Jun Pre-Open

While the Indian economy appears to be on a weak footing, there is one sector that has taken the country by storm. Any guesses?

The answer is the e-commerce business. Giant e-tailers like Flipkart, Snapdeal, Amazon, etc. are revolutionizing the way people buy things. Using technology-driven platforms, they have challenged the traditional distribution systems and have eliminated many intermediaries.

These days you can find people buying all kinds of things online. If you can buy practically everything directly from the sellers, one may ask: Why can't we buy shares directly from sellers? In other words, do we really need brokers anymore for stocks that were dematerialised long time ago? Why can't the stock be delivered directly into their accounts?

This question was posed in an interesting article in Business Standard. And it seems like a pretty valid question.

It is worth noting that the Securities and Exchange Board of India (SEBI) implemented direct plans for mutual funds since January 01, 2013. This meant that investors could invest directly in mutual funds without having to pass through a broker. As per some reports, around half of the fresh inflows from retail investors in equity funds are through such direct plans. This reflects that many small investors are ready to invest online.

The other point is about the utility of brokers. Are brokers the best guardians of your wealth? Do they provide the most solid and independent advice to small investors? Given their business dynamics, the interests of brokers tend to often be in conflict with those of their smaller clients. And given the ease and quality of information available on the several online portals, the services of brokers are getting more and more redundant. In fact, several large investors and corporate treasuries have their own broker licence.

So, will brokers go the way the dinosaurs did? Well, the services of brokers may not be completely obsolete yet. But investors who are able to invest on their own should have the option to buy and sell shares directly, without having to pass through an intermediary.

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