Why Zerodha made its Mutual Fund investment (Zerodha Coin) for Free?

Zerodha started its mutual fund investment business in April 2017. Good news is, it is not the same way as all other brokers in the market are offering. Here also they have come up with a different idea. Idea was to provide maximum benefit to clients by offering investment in Direct Mutual Funds.

Now let’s first understand- What isDirect Mutual Fund?

To explain direct mutual fund service, let’s take a very simple example.

I want to buy 1 Kg Tomato, now I have multiple options to buy tomatoes –

• I can buy from local vendor who is selling tomato @ Rs 48 per kg
• I can buy tomato from Retail Store (like big bazaar) @Rs 45 per kg
• Another option is to go to the nearby farm and buy directly from the farmer there @ Rs 30 per kg.

Generally people go to the local vendor or retail store in order to save time and effort.

Same is the case with mutual fund investment. Every mutual fund has 2 plans – Direct Plan and Regular plan. The direct plan is the same as a farmer selling his product from the farm, where the regular plan is the same as a local vendor or retail store in our example. In the Direct plan, the expense ratio is limited whereas, in the Regular plan, the expense ratio is higher with the added commission of middleman/broker.

Zerodha Coin is a platform where you can invest in Approx 31 AMC's Direct mutual fund plans. Zerodha as a distributor of Mutual Fund is not getting any commission from the AMCs. Hence, the company was charging a minimum fee of Rs 50 PM. Now, from Aug 2018 the company stopped charging a monthly fee and providing a FREE platform to its clients. So now you can invest in Approx 31 AMCs Direct mutual fund plans for FREE and manage all on a single platform and Demat Account.

Why Zerodha is providing Free Mutual Fund Service?

Now let’s understand this from the company point of view. The reason behind giving free mutual fund service is to

1. Add more clients in the portfolio to reach to number one brokerage house in India.
2. Zerodha got NBFC license with which they are planning to start Loan Against Securities (LAS) business to give loan against Equity and Mutual Fund Investment.

From investor's point of view, investing in Direct Mutual Funds with Zerodha Coin Platform is the best decision as it increases your final amount of investment significantly due to lower expense ratio of Direct plans.