Zerodha Broking Ltd

Overview

Zerodha is a retail stockbroker: individuals open an account with it and use its software to buy and sell shares, mutual funds, bonds and commodity contracts. The firm does not hold client money for lending, does not sell investment advice and does not run a distribution business for third party financial products, which is what allows its pricing to stay flat as trading volumes grow.^[1]

The company was incorporated in August 2010 in Bengaluru by brothers Nithin Kamath and Nikhil Kamath. Both had traded for years before that, running proprietary positions and advisory work rather than a brokerage desk, and the firm was built around software they wrote themselves.^[2]

Zerodha has never raised outside capital. It funds itself from its own profits, which removes the pressure to sell products that pay a commission, and it says so on its own company page.^[2]

The zero brokerage decision

In 2015 the firm stopped charging brokerage on equity cash trades altogether. The move was reported at the time as a break from the way Indian brokers had priced retail trading, and competitors responded within weeks.^[1]

The economics were straightforward once the platform was self service: a flat fee on intraday and futures trades, no fee on delivery, and revenue from the float and from exchange incentives rather than from the customer's turnover. Low pricing brought volume, and volume brought the cost per order down further.

By 2019 the firm had overtaken the older bank backed brokers to become the largest broker in India by active clients, a position it has held since.^[3]

Products

• Kite, the trading front end for equities, futures, options and commodities, with web, mobile and desktop clients.
• Coin, a direct mutual fund platform that invests in regular schemes without a distributor commission.
• Console, the back office where a client sees holdings, tax reports and statements.
• Varsity, a free education library on markets, written in the firm's own voice.
• Rainmatter, the firm's fund and foundation arm, which backs startups in financial technology and funds work on climate and public health.
• Zerodha Fund House, its asset management venture, for which the firm applied for a mutual fund licence in 2020.^[7]

Investing and the wider ecosystem

Zerodha began writing small cheques into Indian startups in the mid 2010s and formalised the activity through Rainmatter, which has backed financial technology, consumer internet and climate companies. The firm describes the fund as a way to put its own balance sheet behind products that its customers might use next.^[6]

The same balance sheet funds Rainmatter Foundation, which gives grants to organisations working on air quality, water, forests and livelihoods rather than for a financial return.^[2]

How it reads as a business

Zerodha is unusual among large Indian financial firms in three ways: it is founder controlled and never diluted, it earns from transactions volume without pushing commission products, and it treats technology and education as marketing rather than as cost centres. Analysts have described the strategy as a blue ocean position, where the firm defined a lower price point and a self service model before the incumbents could respond.^[4]

The concentration of retail trading in a handful of platforms, and the way discount brokers earned from peak derivatives volumes, have both drawn regulatory attention in Indian markets, which is a risk the firm carries with the rest of the industry.^[1]