The largest bootstrapped financial Broker in India ‘ZERODHA’ has been a common interest and talk of the town among the youths of India. After the covid pandemic, there has been an increased customer flow to the stock market and ZERODHA stood as the most popular choice among the clients.
It is the largest broker in India and one of the largest retail trading platforms in the world by activity. With an almost 1 crore client base, It contributes to 15% of the trading volume in India on a daily basis. It also provides the largest mutual fund investing platform to invest in any direct mutual funds with zero platform fees. Zerodha provides an online platform to invest in stocks, ETFs, derivatives, mutual funds, and more.
On any single day, Zerodha executes 10 to 15 million orders per day which is an even bigger number than any broker in the United States. In absolute no. of trades on any day, Zerodha is the largest in the world.
As per the latest financial report, Zerodha is the most profitable retail broker in India with 2729Cr revenue.
Let’s know how Zerodha became the people’s first choice and its journey.
Zerodha was bootstrapped and founded by Nitin Kamath with the help of his brother co-founder, Nikhil Kamath(Now heads True beacon-hedge fund) in the year 2010. Zerodha pioneered the discount broking firm in India which saved the Indian traders from high Brokerage charges, charged by big traditional firms.
The company's name comes from its mission to disrupt the price model. The name Zerodha is a combination of “Zero” and “Rodha”. “Rodha” is a Sanskriti word that means Barrier.
Although Charles Schwab Financial services company started Discount broking first time in the US in the early 90s, in India it was introduced first time by Zerodha with a flat brokerage fee model.
Zerodha is often compared to Robin hood which started 5yrs after Zerodha started. But the business model is very different. As Robin hood was the disrupter in the brokerage industry in the US, likewise Zerodha was the disrupter in the Indian brokerage industry with its very cheap pricing model and still continues to do so.
Founder Nitin Kamath who started as a trader at 17, felt the issues that a trader was facing and knew a trader's needs.
About 55-60% of Zerodha traders are new to trading and almost 70% of them are below 35years of age. The average age of the client at Zerodha is around 20 to 30 years, and the products at Zerodha attract the youth more.
With “0” Rs. spent on Customer Acquisition and advertising, Zerodha managed to bring most of its, customers, through word of mouth.
Zerodha charges “0” Rs for investing in equity, which made it viral and very popular back in the day. This pricing model attracted many customers who wanted to invest in the stock market.
Then came the ‘KITE’ in early 2016, which was faster than any available trading platform at that time and very easy to use, and the biggest reason for ZERODHA’s growth.
Founder NITIN KAMATH always gives the credit to the CTO of Zerodha Kailash Knadh for creating KITE which is the ultra-fast trading platform of Zerodha.
Zerodha is also the 2nd largest percentage shareholder in BSE-Bombay Stock Exchange.
Zerodha has never raised a penny from external investors from the very start, and never got into raising fake valuations. It bootstrapped itself and grew with its own money. The financials have been very impressive.
Zerodha also successfully runs one of its VC funding through “Rainmatter” which invests in India's Fintech startups by helping them through technology and showcasing their product to its large client base. Which helped it a lot creating a financial ecosystem around it.
Some of the start-ups like Sensibull, streak, and Small case have been very popular among traders and investors.
Varsity, a free education platform by Zerodha is now the world’s largest online stock market education book and is written thoroughly by Kartik Rangappa for Investors and traders.
There have been some complaints that Zerodha is not providing ‘Margin Funding’ and sometimes restricts its client’s buying risky penny stocks showing a “Nudge” which in turn is a good thing for a novice investor in the market.
Zerodha offers buying and selling of stocks on NSE and BSE which are two mostly traded exchanges in INDIA. It provides brokerage free investing in Stocks and ETFs through KITE, which attracts lots of its users.
With the super-fast Order Window, buying and selling securities is very easy in KITE.
Several other brokerage firms in India started offering free equity investing with competition to Zerodha.
The trading hours are maintained with exchange timings.
However, Zerodha doesn’t allow investing in Foreign stocks till now because of some settlement complexity.
Every year SEBI's changing strict regulations are not making an impact on Zerodha as its policy has always been simple, transparent, and parallel to SEBI guidelines. Zerodha doesn’t entertain high leverage trading, which impacts its revenues somehow but it does it to save its customers from blowing up their accounts by using high leverages.
New IPOs can be applied through Zerodha -Console using your UPI ID. Apart from that, any corporate action like buyback, takeover, or OFS through Zerodha can also be applied for your stocks.
Zerodha provides India’s largest Mutual fund platform with an AUM above 8000 crores. It has a separate app called COIN for investing in more than 2000 Direct Mutual funds. The coin started in 2017-18 and gathered immense responses from customers. You can invest in direct mutual funds without paying any commission to the distributor, making the expense ratio very less.
Zerodha doesn’t charge anything for the investments made through COIN. The COIN is absolutely free. You can do both SIP as well as lumpsum investments through COIN.
You can also invest in Government Bonds, T-Bills, Corporate Bonds, and Sovereign Gold bonds through COIN.
Any NFO-(New Fund Offering) is issued in ETF and SGBs can be applied through COIN before they are listed on the exchange.
Buying Sovereign Gold bonds or Gold ETFs are always better than physical gold with respect to the returns you receive. In physical gold, you have to pay at least 3% GST at the time of Buying which reduces its return significantly.
Whereas investing in SGBs and Gold ETF is always rewarding and Zerodha facilitates its customers for investing in these through KITE( if you want to buy from the secondary market) and through COIN( from the Primary market if you want to invest before listing ).
Zerodha’s cheap pricing model encourages customers to use its Futures and Options trading extensively. Currently, most of its revenue also comes from this segment.
The FNO trading is allowed in equity, commodity, and Currency. Only 4 currency pairs are now allowed to trade in Zerodha as per Exchange limitations other cross currency pair trading is still not possible through Indian exchanges.
Zerodha Capital, the NBFC arm of Zerodha has a Non-Banking Finance Company(NBFC) from RBI, India. It provides the loan against the securities that you have in your Demat account.
The annualized interest is charged as a fixed 10.5%.
NUDGE- With Nudge Zerodha helps its users avoid mistakes while taking any decision during buying and selling of securities. Zerodha shows you a warning Nudge if you try buying any dubious or penny stocks, or very illiquid scrips or stocks with corporate action, etc.
KITE ALERT- You can set an alert on various parameters using Kite Alert feature through Zerodha. You will get a Mail and Mobile notification when the price hits the price condition set by you.
EVENT TAG- Zerodha has a cool feature in kite showing an event tag with the scrip name if it has any important event like financial results, corporate action, or Annual General meeting in the company.
GTT- This is one of the most popular features in Zerodha. The Good till triggered (GTT) feature works like an order that is active until the trigger condition is met. This trigger will be valid for one year. This helps you not to monitor the stock prices actively.
GIFT STOCK- You can gift Stocks, Mutual funds, Bonds, and ETFs to any of your friends or family member through the Zerodha Gift feature.
BASKET ORDER- Basket order helps you in placing multiple orders in one go. You can execute up to 20 orders in one basket at the same time. This is very helpful while making FNO strategies and their execution.
Trading QNA and Zerodha Support Portal- Trading QNA is a very active discussion forum produced by Zerodha. It is a questions and answers forum mostly related to Trading and Investing. Even CEO Nitin Kamath stays very active on this platform.
Zerodha Support Portal is designed in such a way you can resolve most of your issues just by searching the query on its search bar.
All these initiatives by Zerodha are to try to make traders self-dependent and knowledgeable about the Market.
Referrals and Rewards- Many of the clients come to Zerodha through customer referrals because of the benefit it provides. It provides 300 points and 10% brokerage for a lifetime on referring any of its clients.
Varsity- This initiative is the best and most unique thing that sets Zerodha apart from other Brokers. It was started around 2014 and is written totally relevant to the Indian stock market. A trader can start learning from the “0” level and gradually go to all advanced concepts.
KITE is the ultra-fast trading platform with superfast order windows to trade any stocks, bonds, or ETFs listed on the exchange.
COIN provides a platform for investing in direct mutual funds along with other services like New Fund Offering of ETFs, G-Secs, T-bills, and SGBs.
CONSOLE is the reporting platform where you can analyze your P&L, portfolio, trades, etc, and can also download many other required reports. It is the back office for KITE and COIN investments.
As per a report produced by Finshots the most profitable Broker in India is Zerodha with a net profit of 1122Cr(Revenue at 2729Cr) for the financial year 2021. Then followed by ICICI securities with net profit 1067Cr and Kotak Securities of 783Cr.
In most active clients Zerodha is maintaining its number 1 position. Zerodha has a huge client base and most of its customers were brought to the platform without spending anything on Customer acquisition.
The big competitor of Zerodha in the discount Broking industry is UPSTOX, 5PAISA and GROWW-like businesses but they are spending a lot on customer onboarding which is impacting their annual revenue. Some of them are also providing free stocks at the time of account opening but it has not impacted much to the competition with ZERODHA.
Most clients’ experience with the user interface has been great according to reviews.
The lifetime value(LTV) of a customer in fintech platforms with respect to CAC(Customer acquisition cost) in India is very less, which might be the biggest reason for other brokers struggling to be profitable in this industry.
ZERODHA invests in many new FINTECH start-ups through the Rainmatter initiative. It has created an Ecosystem of interesting Fintech businesses around it, which adds value to its customers.
Small Case, Sensibull, and Streak like very helpful fintech platforms are integrated into the Zerodha KITE platform, which helps customers use their features easily.
More than 25 start-up companies are invested through Rainmatter, Zerodha.
Rainmatter foundation also works for climate change and reducing carbon Footprints.
Last updated on 10th Jul 2022
As Zerodha has been a SEBI registered Broker, it tries to make compliance according to the SEBI guidelines. Till now in India Bitcoin or crypto legal status is unclear and vague. So it has promised to provide crypto once it receives the SEBI approval.
Till now Zerodha has not come up with a direct investing system in US stocks or other international stocks because of some internal settlement complexity. But you can invest in international mutual funds(which invest in international stocks) through COIN Zerodha.
Margin Funding is the way a Broker provides extra leverage to the client for holding stocks overnight. Zerodha has been very conservative regarding leverages provided to the client. It somehow hurts their revenues but it is ultimately good for a new trader(retail who doesn’t understand the risks of leverage).
Lately, SEBI has imposed some strict guidelines about Margin funding and its misutilisation by brokers. But Zerodha is looking to provide this Margin funding feature in near future.
Zerodha is a fully Bootstrapped company with zero debt and obligation. They don’t feel the need to raise extra money unnecessarily just to raise fake valuations. They have never raised money through any VC Funding (venture capital).
Because Zerodha has to make its no investors happy, they have been able to make the better products as per customer needs, as said by Nitin Kamath.
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