One of the prerequisites of starting an authorized person business is the deposit. It is an amount demanded by the stockbroker to allow an authorized person to associate with them. Some stockbrokers are very upfront on the deposit amount they require, and others will give you a range, which can be between Rs 50,000 – Rs 3,00,000.
The authorized person agreement contains the details regarding the authorized person’s deposit. It describes the components, fees, and other essential information on the deposit amount, which the authorized person must fulfill. One of the significant points of the agreement is the payment of the authorized person’s deposit to get the rights to do business with the stockbroker.
An authorized person deposit is a one-time payment that every authorized person must pay. But is it possible without a deposit? In some instances, yes. But, before discussing the matter in hand, let us also look at the authorized person deposit and try to gauge its importance.
Authorized person deposit: Key Highlights
Authorized person deposit is a one-time fee demanded by the stockbroker to allow authorized persons to do business with them. It is refundable and returned to the authorized person at the termination of the agreement. Now, let us discuss the main characteristics of it.
– It works as a guarantee for the stockbroker to safeguard against any future payment delay or failure
– It is mostly refundable, returned at the end of the contract
– It can be paid in form of cash or shares
– Authorised person deposit has a vital role to play in deciding commission structure between the stockbroker and the authorized person
– Higher the volume of the deposit, the higher will be the percentage of commission
– With the deposit, the partner opens a DEMAT account with the stockbroker to carry out official transactions
– Some stockbrokers, especially the new ones, may offer zero deposit fee partnership as their business policy to expand their authorized person network
Types of authorized persons:
Authorized person deposit is often linked to the business model agreed between the stockbroker and authorized person. When we say an authorized person without a deposit, a lot depends on the agreed-upon terms of business. To understand it better, let us look at the common authorized person patterns.
Master Franchise:
An authorized person can obtain a direct franchise from a broking house. They usually work under the banner of the broking house and need to get office space to run the business.
Authorized Person:
An authorized person is an authorized person who is registered under the exchange. The AP model also needs an initial deposit.
Remisier:
A Remisier works on a commission basis, usually at a lower percentage than a franchise or an authorized person, and his primary role is to bring new business to the broker. They do not carry our actual transactions.
Introducer:
An introducer will only give prospective clients references to the stockbroker. They receive a commission when the client gets converted.
Other costs of an authorized person
An authorized person deposit is not the only cost involved. An agent may also have to make initial payments towards SEBI registration and renting office space, hiring employees, and more.
Authorized Person Without Deposit: Is It Possible?
Yes, under certain circumstances, you might strike a deal with a zero deposit. Earlier, only introducers could enter a partnership without paying a deposit. But nowadays, many broking houses have lowered their deposit rate or eliminated it to remain in the competition.
Sometimes, a stockbroker might offer attractive zero deposit deals to reputed authorized persons who can promise a volume of steady business every month.
Now, before you toy the idea of becoming an authorized person without a deposit, consider the long-term benefits. If the stockbroker is a new one, then you might have to find their reputation in the market and long-term business possibilities before committing.
Conclusion
To start an authorized person business, you need to make an initial payment known as an authorized person deposit with the broking house. It works as a cushion for the stockbroker against any payment failure. The deposit amount will vary between the stockbrokers, while old and reputed ones may charge higher rates than the new ones. But an authorized person without a deposit is also a growing concept, adopted by many stockbrokers in the face of growing competition in the market. Evaluate all your options with time before committing to a proposal.
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