Today, I am going to talk about broking business. This is because there are nearly 8 lakh bank employees in India compared to only 300 registered brokers in India and 93 % of people have no idea of share market. This is in sharp contrast to USA where 50% of the people invest in share market. My point is that it is a very untapped market and there are a lot of opportunities available.
And broking business offers provide a lot of benefits which I will list below. People in India wants safe job and safe returns also on their investment .They invest in safe assets like “Fixed Deposit” and recurring deposits in banks and post offices. In fixed deposit and recurring deposits also , a government bank is preffered. Similarly in life insurance also , Government owned “LIC” is preffered. India has 150 lakh crore of fixed deposits and 40 lakh crore in “LIC” https://www.moneycontrol.com/news/business/ipo/lic-ipo-company-8th-largest-life-insurer-in-terms-of-assets-among-global-peers-8087181.html
But if you observe closely ,the bank provides the same products as a broker . In fact it is also a broker and I believe that if a person through his efforts reaches a managerial post , he can very well start his own broking business. Broking business is a business which includes all the investment services like investing in shares ,trading in shares, mutual funds ,health insurance, life insurance and general insurance .Many services provided by the brokers are also provided by banks. There are some differences though.
One major difference is that when you will visit a bank, there is high chance that the bank will promote their own product. For example if you visit a branch of State Bank of India and ask for a life insurance , there is very high probablity that they will explain a life insurance product of SBI Life and not of any other company even though you have more benefit in plans of other insurer.
Similarly if you ask for a dmat account for share trading, they will open an account of their own subsidary company of SBI Securities https://trade.sbisecurities.in/ and not of any other company .
But a broker has life insurance of various companies like HDFC Life ,ICICI Prudential Life among various others. Similarly for mutual funds ,if you go to SBI, they will give you a scheme from SBI MF only but if you go to a broker ,they will have mutual funds of all the companies. In this blog I will list out 7 benefits of starting a broking business .
- Recurring Revenue- Broking business provides a recurring revenue model. All the products generate recurring revenue for the broker.
- For example mutual funds have commission on a small basis but it continues on a recurring basis till the investment of the client is present with the broker. Similarly in life insurance also ,some commission is paid to the broker every time the customer pays the premium amount. Same is the concept with health insurance and general insurance also. So eventually as the number of customers increase , the income of the owner of the broking house also increases.
- Easy to start- The broking business is very easy to start. If you have money, you can start by registering with the government regulator and if you do not have money , you can become a sub-broker with any of the registered brokers with as low as Rs.10000. You can even start from your residential area. It is not mandatory to start by investing a large amount initially.
- Low investment required- The broking business has become easy to start now compared to 10 years ago. Today the competetion has increased and customers have a lot more options than ever before. This has forced brokers also to bring down the eligibility criteria of onboarding partners to a bare minimum and as a result , today very low investment is required.
- Compounding returns-The broking business provides compounding returns to the owner. There is simple maths. If a broker makes 20 clients per month , in the first year ,he will have 240 clients. The second year ,he will have 480 clients ,the third year 720, fourth year 960 and so on. Besides ,the revenue from the earlier clients will keep coming and new clients will also add up.And 20 clients is assumed keeping in mind that he has no employees initially and only he is working independently. So the revenue keeps on increasing and the broker starts getting compounding returns.
- High return on Investment- The broking business provides a high return on investment compared to what he has put in initially. For the first 2 years (initial phase),maybe he will not earn any substantial amount, but in later years ,the effect of compounding starts to show its effect.
- Helps in financial freedom- This business model helps in achieving financial freedom in a few years only . For more information about financial freedom you can visit my blog here https://sidworld.in/5-ideas-for-financial-freedom/.
- Entrepreneurship- In India ,many people are looking for jobs ,more particularly ,bank jobs.But if some people change their mindset (I am talking about people in mid or senior level ) and start their broking business instead ,they can make a lot of money and even provide employment to some people. I am saying this because banks also provide similar services compared to a brokerage firm. The products are also same to an extent like life insurance, general insurance , mutual funds and stock broking business . The difference just lies in the mindset of people .If some of the people start taking some risk and open their office ,then they can earn much more than they earn in salary .But most people are not able to start their own business because of the lure of salary and family responsibilities. But if they take calculated risk and compare the risk-reward ratio in job versus in business , they will find that in business the reward is much more because of the benefits which I have listed above. This can only happen if the person changes his mindset because the mindset of a businessman is very different compared to the mindset of a person who is in a job.