Is 5paisa safe for trading and long term investment? (2024)

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5paisa is a trusted stockbroker in India for many reasons including it is a publicly-traded company listed on NSE & BSE exchanges, a company with Zero Promoter Pledge (promoters have not pledged their shares for loans), professional management, and promoted by Mr. Nirmal Jain (promoter of IIFL Group).

5paisa is one of the leading stockbrokers in India with lakhs of active customers. It has started offering discount brokerage services in 2016. It is a member of major stock exchanges like BSE, NSE, and MCX. It is a depository participant (DP) of CDSL.

Being a stock broker and a publicly-traded company, 5paisa follows rigorous compliance and audit practices in comparison to many other unlisted stock brokers. The company is regularly audited by BSE, NSE, MCX, CDSL and SEBI. As of May 2020, none of the regulatory agencies has reported any major violations by the company.

About 5paisa

5paisa is one of the leading online discount stock brokers in India. It offers online trading and investment in Equity, Derivatives and Mutual Funds. Here are a few key facts about 5paisa.

• Among the top 5 online discount broker in India.
• Promoted by Mr. Nirmal Jain, the promoter of IIFL Group.
• The only public listed Discount Broker.
• One of the few stock brokers to offer algo trading.
• Provide Research and Recommendations at an extra cost.
• Margin funding is available @18% yearly interest rate.
• Monthly and Yearly prepaid brokerage plans are available.

Why 5paisa is safer than other brokers?

1. No client securities in the pooled account

   5paisa doesn't keep client securities in a pooled account. Every customer must open a demat account with 5paisa along with the trading account.

2. Simple Pricing Model

   5paisa has one single brokerage rates for all its customers. It doesn't matter if you are an HNI or an investor. No one gets special treatment at 5paisa. Having a single rate for all customers reduces the operational risks significantly.

3. No Proprietary Trading

   5paisa doesn't do proprietary trading. That makes is a safe broker in comparison to many stockbrokers who do proprietary trading from the funds kept in customers' accounts.

4. No Power of Attorney

   5paisa is among the few brokers who have 90% clients without demat account power of attorney. This offers 100% security to clients of their holdings. Note that the customer has to put a password at the time of selling stocks to authorize 5paisa to withdraw the shares from the demat account.

5. Listed Company in NSE & BSE Exchanges

   As a listed company, the books of the company are open to scrutiny by regulators, shareholders, and investors, etc. The company is required to publish its performance and financials periodically. This ensures that the company follows all regulations laid by SEBI and stock exchanges. The company's management is also answerable to the promoters, board of directors, and shareholders. 5paisa is a professionally managed company.

6. Zero Promoter Pledge

   As of March 2020, 5paisa is a company with zero promoter pledge i.e. its promoters have not pledged their shares as collateral to get loans from banks. Companies with a high proportion of promoters pledging their shares are viewed as risky because it raises questions about promoters being low on finances or facing debt problems.

   Promoters of 5paisa hold 34.58% shares as of March 2020.

7. Growth-oriented company

   5Paisa is looking at the massive growth in the next few years after it was bolstered with Rs 110 crore fund infusion through a rights issue in August 2020. The company already made 4+ lakh clients in a short span of 3 years.

8. Technology-Focused Company

   5paisa is completely an online brokerage company. The company offers all its services online and has very little physical presence that gives it a substantial cost advantage in terms of saving expenses in staff, real estate rentals, etc. It also is one of the few stock brokers that offer Algo Trading and Robo Advisory. With the world going digital and online services being the future, the company's investments in technology make it future-ready.

9. Lowest Complaints to Active Clients Ratio

   5paisa's ratio of complaints to active clients is among the least on the exchange.

5paisa Risks

While 5paisa is mostly a safe broker, there are few risks that you should know before opening an account.

1. Margin Funding

   5paisa offers margin funding to its customers. Margin funding is considered risky business for stockbrokers where a broker lends the money to traders for the short term.

   Other discount stock brokers like Zerodha and Upstox do not offer margin funding.

2. Loss Making Company

   As of March 2020, the company is a loss-making company. 5paisa is a young company that is still in rapid expansion mode. It continues spending money on customer acquisitions.

3. Not a Debt Free Company

   5paisa is not a debt-free company, unlike its peer Zerodha. Note that in the corporate world; most financial irregularities have debt as the main catalyst. 5paisa has a debt of over 100 cr as of March 2020.

5paisa Memberships

5paisa is registered with SEBI and a member of leading stock exchanges like NSE, BSE, and MCX. All stockbrokers offering trading services in India must register with SEBI and follow various guidelines. 5paisa is also a DP (Depository Participant) with CDSL, one of the two Central Depositories in India that manages demat accounts.

5paisa's various membership details are as follows:

• SEBI Registration no.: INZ000010231
• CDSL: 12082500
• NSE Member id: 14300
• BSE Member id: 6363
• MCX Member ID: 55945
• Investment Adviser Regn No: INA000014252

Conclusion

5paisa is a safe, reliable, and trustworthy discount broker. It is the first stock broking company to be listed in NSE & BSE. It is a professionally managed company backed by IIFL group promoters. The company has grown massively in the last few years. Technology-focus and good revenue model are ensuring that the company maintains profitability while pursuing high growth.

Must Read:

• 10 Steps to safeguard trading and Demat account

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