Cost of Stock Investing

(Updated: 31 January 2020)

In Malaysia, every share transaction of listed companies takes place in Bursa Malaysia. Since it is a regulated transaction, there are fees and charges involved as well. That is the reason why the amount payable is always more than the share price. This is the cost of stock investing. What are these fees?

Generally, there are 3 types of fee involved in trading stock. You should know that these fees are levied whenever you transact, either buy or sell.

Brokerage fee

As the name suggests, this fee is charged by the brokerage firm that you use. What are we paying for?

Quoting Investopedia,

“A brokerage fee is a fee charged by a broker to execute transactions or provide specialized services. Brokers charge brokerage fees for services such as purchases, sales, consultations, negotiations, and delivery. There are many types of brokerage fees charged in various industries. Examples include fees charged include financial services, insurance, real estate, and delivery services.

(Investopedia Definition Link)”

Thus, no matter what, if you invest in the stock market, you cannot escape from this fee. Every brokerage has a different charge. It is usually a percentage of your contract value with a minimum fee. How to minimize this fee? Try to find a brokerage firm with the lowest fee if possible.

Stamp duty

Malaysian government charges this fee. What is this stamp duty?

According to Investopedia,

“A stamp duty is the tax placed on legal documents, usually in the transfer of assets or property.

(Investopedia Definition Link)”

It’s okay if you do not understand. After all, there is nothing much that we can do about government levy but to pay it. The normal charge is RM 1 for every RM 1000 of contract value. The minimum that we have to pay is RM 1. The maximum amount is RM 200 per contract.

But there is good news. Starting from March 2018, the government exempts stamp duty for small- and mid-cap companies in Bursa Malaysia. This exemption involves 361 companies, representing around one third of total listed companies. This exemption will be in effect for 3 years and the list of companies will be reviewed annually based on their market capitalization at year end.

Clearing fee

This fee is charged by Bursa Malaysia. This is where part of its revenue comes from. What services are we paying for?

“A clearing fee is a charge assessed by a clearing house for completing transactions using its own facilities. It is most often associated with the trading of futures and includes all actions from the time a commitment is made to the time a transaction is settled.

(Investopedia Definition Link)”

In short, this is a service charge for completing our transactions. The current rate is 0.03% of the contract value, with a maximum fee of RM 1000 per contract.

Goods and Services Tax (GST)

Last but not least, since share trading is in the service sector, we cannot escape from GST. Standard rate of 6% applies to both brokerage fee and clearing fee. Thus, we have to fork out another 6% on these fees. Stamp duty is exempted from GST though. Maybe because it is charged by the government too.

*GST was abolished since 1st June 2018.

Sales and Service Tax (SST)

SST was introduced to replace GST. Since 1 March 2019, we will have to pay service tax of 6% on the brokerage fee. The other fees are not taxable.

End

So, these are the transaction fees for investing in Bursa Malaysia. The larger the amount you invest, the higher the fees you will need to pay. Does it still make sense to invest in the stock market with all these fees? That’s up to you to answer it. But the fee structure of mutual funds can be even higher. But remember that there is no free lunch in the world. To make money, you have to spend money first.