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Trading costs in India 2nd lowest

Virendra Verma

Aparna Krishnan

MUMBAI, Nov. 29

TRANSACTION costs in the Indian equity market are the second lowest in the world after the US.

According to the National Stock Exchange's Indian Securities Market Review, which quoted a SEBI study, the transactions costs for equity shares in India, at least for institutional investors, are much lower as compared to some of the developed and emergi ng markets.

The study says that transaction costs for mutual funds in India are 31 basis points and for foreign institutional investors (FIIs), are 40 basis points. The cost in the US is 1.636 basis points. For example, the cost for a transaction worth Rs 100 will be 31 paise for mutual funds and 40 paise for FIIs.

A comparison of the transaction costs among the various emerging and developed equity markets shows that Hong Kong has a transaction cost of 38 basis points, Thailand (63.5 basis points), Indonesia (69 basis points), Italy (70 basis points), Singapore (7 0.5 basis points), Australia (80 basis points) and the UK (80 basis points).

There has also been a decline in transaction cost for equities for all group of investors in India due to increasing number of scrips being traded in dematerialised form and substantial fall in bad deliveries. ``Increasing competition has also put pressu re on trading costs,'' the study has noted. But the average transaction cost for retail investors is higher than that for institutional investors on account of higher brokerage.On the reason for lower transaction cost for institutions compared to retail investors, the study says, ``institutional investors offer higher volume of business, and therefore, have better bargaining capacity''. They are also not required to pay any margins and this also leads to lower cost for them.

According to the review, the transactions costs are linked to the liquidity to a certain extent. The lower the transaction cost, the lower would be the bid-ask spread and higher the volumes.