Discount broking unicorn, Zerodha is all set to enter the mutual fund industry after getting an in-principle approval on September 1st from SEBI to set up an Asset management Company.Having applied for AMC licence in Feb,2021, Zerodha will be able to start the AMC business in a year’s time after the approval. Background Founded in 2010 by Mr.Nithin Kamath and Mr.Nikhil Kamath, Zerodha’s aim was to provide online broking services at discounted rates and a user interface that was reliable and easy to use. From a team of 5 to over 1300 and a clientele of 6 million who place orders every day on the app to make money, Zerodha has had a very fruitful journey. Zerodha has focused on bringing transaction costs down in its brokerage business. Zerodha doesn’t directly invest but it has started a fund named as “Rainmatter” which inturn invests in other startups. Rainmatter has made 11 investments to date. Services offered include: - 1 - Delivery trades are free of cost, only intraday transactions are charged a flat fee or 0.03% (whichever is lower) 2 - Commodities trading Following SEBI's relaxation of entry barriers in 2019, many fintech’s are venturing into the mutual fund industry. Zerodha is ahead in the race Due to the rapid emergence of technology and the increasing number of investors, mutual funds have become more prominent in today’s world. With a total asset under management of Inr 36 Lakh crore, mutual funds have become more accessible to a wider audience. Why is Zerodha foraying into AMC business? 1 - Increase participation of Millennial’s in capital markets 2 - Introduce low-cost index funds and exchange traded funds 3 - Provide Low-cost investment solutions. Roadblocks for the Unicorn to set up AMC. 1 - Stiff competition from competitors like SBI mutual fund, HDFC mutual fund, ICICI prudential and others. 2 - Company has recently turned unicorn in 2020, so it is still in the growth phase. 3 - Being an online platform, there is lack of fast customer service. 4 - Online business will also lead to technical glitches as evident when traders faced a glitch in Zerodha system in NSE cash segment earlier this year. Zerodha already has one foot in the water with the company being the largest discount broker in India. Millennials are preferring tech solutions and the company is the first to step ahead and provide easy trading options. Passive, simple, cheap index-traded funds will be on offer as said by Mr Nithin Kamath. These words indicate that Zerodha is all set to improve the MF industry and introduce a whole new set of reimagined MF products. Only time will tell if the Giant discount broker is able to thrive in the untested waters and survive. Thank you.
Very informative 💯
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ReplyDeleteVery well explained Chirag!
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