Vaibhavi Khanwalkar Moneycontrol News
Bengaluru-based online discount brokerage firm Zerodha’s aim has been to make trading barrier-free since it was founded in 2010 by brothers Nithin and Nikhil Kamath. Hence the name Zerodha; it comes from the words 'zero' and 'rodha', the latter Sanskrit for obstructions.
Their work has finally paid off as the firm dethroned long-time market leader ICICI Securities to become the largest brokerage firm in India, with nearly 8.47 lakh active clients. The platform sees two to three million trades every day which makes it the largest retail brokerage firm across the world. It adds 50,000 to 75,000 accounts every month.
Zerodha brought many firsts in India's broking industry when it entered the market in 2010. It is India's first 'discount brokerage' firm.
A discount broker is different from a full-service broker in that it does not offer research services to its client, such as buy or sell recommendations. The cost it saves by not having a full-fledged research team, it passes on to customers via a low brokerage.
Zerodha applied a flat fee of Rs 20 for every trade, irrespective of its size with no brokerage fee, which was deemed as quite disruptive by experts at that time in the market. Compared to that, other brokerages used to typically charge a percentage of the traded amount.
The startup kicked off with a team of five people, which has now gone up to an employee count of nearly 1,300 today.
Credibility and transparency are crucial for any financial services business, Nithin Kamath told Moneycontrol.
"It took a long time, it was a slow transition that happened over the last eight years. In our first year, we opened 3,000 accounts. When the cost of any product or service is less, people automatically question the quality. That was a big challenge for us right from the start. We were able to build a community around us, which helped in the long run. Even today we don't spend any money on advertising,” he said.
The focus on building a community helped because initial skepticism towards Zerodha’s discount broking model stemmed from the fact that retail investors, who are often clueless about what stocks they should or sell, were not offered any research services.
To counter this, Zerodha launched Varsity, a learning module, which has become immensely popular. It also runs TradingQ&A, an active forum were traders and investors, can discuss stock ideas. Then there is ‘Z Connect’ an interactive blog.
Nithin invested in a lot of tech startups in a hope to make relations with budding technologists.
"The problem we are trying to solve with this is how to grow the capital market ecosystem in India. It can only happen through educating people on a platform which has content and engagement both," Nithin said.
Over time, Zerodha has used technology heavily to differentiate itself. Its trading platform Kite on web and mobile accounts for more than 10 percent of all retail trading turnover in India. It recently launched Coin, an online platform to buy direct mutual funds.
It has also invested in a host of promising financial technology startups. These include Smallcase, which allows thematic investing – for instance, it offers you a readymade portfolio of companies expected to benefit from the electric vehicle revolution. Or Sensibull, an options trading platform.
Next for the brand is the aim to add 5-10 million new investors to the Indian market. "India is very dependent on foreign capital to drive the country. For any country to do well, you need local residents to put their money in the market. The money shouldn't just stay in fixed deposits and real estate. I want to encourage people to educate themselves and put the money in the ecosystem in some way or the other to drive growth," Nithin added.
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