It was a dream that 33-year-oldNithin Kamath nurtured ever since he entered the stock trading industry as a 17-year-old-of having a broker.With his ventureZerodha, a Bangalore-based online stock brokerage firm which wasstarted in 2010, Kamath has done just that.
Kamath began his entrepreneurial journey with an advisory business, Kamath Associates in 2004-05. "It was basically to help people manage their portfolios and trade in the market."
Zerodha, his latest venture which is present on the BSE, NSE and MCX-SX, has a unique model with a price of just Rs 20 per transaction irrespective of the size of the deal. Kamath says a flat brokerage fee is a better alternative to the current industry standards of charging commission to the trader based on the size of the transaction.
A few brokerage firms also offer a flat fee, but this is done after a set transaction limit, with the fee determined by the size of the deal. The minimum brokerage charged ranges from Rs 12 to Rs 30, depending on the type of trading.
Kamath says, sometimes new clients at Zerodha become apprehensive because of the company's low transaction fee and wonder if there is any catch or if the service is bad. "I feel, instead of asking why we are charging so less, the question should be why the others are charging so much," he remarks.
Zerodha has been able to offer the lowest cost in the industry because "we know that the operation cost is very low for brokerage firms. The effort, irrespective of the volume of transactions, is the same. For a broker, the cost of execution doesn't go up with the size of the trade," informs Kamath.
The angel broker
Armed with the idea of operating everything online and to fully utilise the online discount concept, Kamath started Zerodha with Rs 2 crore as seed investment. With no funds available to market or advertise his concept and venture, Kamath banked on interactive tools and services offered on Zerodha.com to attract traders. "We also concentrated heavily on technology and came up with different tools and services for our clients as an add-on," he says.
Rajesh Ganesh, one of the traders with Zerodha, who has been trading since the last 10 years and has also worked with other brokerages such as ICICI Direct, Bajaj Capital, etc., says Zerodha's services and incentives are one of the reasons why he chose to stick with them.
One of the biggest incentives for traders working with Zerodha is their 60-day challenge. "We tell our clients that if at the end of 60 days they make money on their investment, we will refund their brokerage fee. The idea is to give clients a challenge to be profitable," Kamath says. More than one lakh challenges have been taken till now, he says.
Another trading tool that Zerodha has come up with is to empower youngsters or people who are interested in trading but have no clue how to go about it. "Zerodha interviews traders who have been profitable and have a good track record about strategies and plans. The company then posts this online for people to learn from it," says Ganesh who has also been interviewed on Zerodha.com.
For a population of more than 120 crore in India,there are only about 10-20 lakh people who invest in trading. According to Kamath, the company adds around 1,500 to 2,000 accounts every month and completes 30,000 to 40,000 transactions in a day. "The younger generation is more aggressive and more online. We hope they trade in stocks more," he says.
Though the broking fee is just Rs 20, the firm has been doing well, claims Kamath, who says, Zerodha contributes 'one-two percent of the total exchange turnover'."Our gross profit would be around Rs 13-14 crores for 2013-14', says Kamath.
Published Date: May 31, 2014 12:32 PM | Updated Date: May 31, 2014 12:32 PM