Transparency helped Zerodha succeed, says Nikhil Kamath

When Nikhil Kamath, now 34, dropped out of school at 14, he neither had a plan, nor any inkling of what he would end up doing.

Nikhil Kamath and his elder brother Nithin Kamath are the richest self-made billionaires in India under 40, with a combined net worth of Rs 24,000 crore and Nikhil alone registering a wealth of Rs 7,100 crore, according to IIFL Wealth Hurun India’s 40 & Under Self-Made Rich List 2020.

The duo started online discount brokerage firm Zerodha in 2010. The start-up has been bootstrapped all along.

In conversation with DH, the Co-Founder and CIO of True Beacon and Zerodha says trading happened organically. “I got hooked on very early, and since then, it’s been a natural progression.”

The first time Kamath invested in equities was when he was 17 years old. “It didn’t work out in the very beginning. There were many phases of losing money and making money in the early days. After four-five years, things got a bit more streamlined as I also gained experience in the market and things started working out better.”

The Kamath brothers have also debuted on the Forbes India Rich List 2020, the annual ranking of the 100 richest Indians, at No. 90, with a cumulative fortune of $1.55 billion.

Talking about the the journey of the fintech unicorn Zerodha, Kamath says what helped Zerodha was that it was transparent, in an ecosystem which was not.

“When Zerodha came about, there was a lot of opacity in the broking world. People would charge a lot in terms of fees. 11 years ago, if you bought something worth Rs 1 crore, you would have to pay as much as Rs 50,000 - Rs 1 lakh brokerage. So what Zerodha did is immaterial of the size of the transaction one might make, We charged a flat fee of Rs 20. That cost benefit helped Zerodha in the very early days,” says Kamath.

“Zerodha, over the years, kind of transitioned to become a tech company and now people come more for our product than the fees that we charge,” adds Kamath.

The company’s revenues touched ₹950 crore in FY20, up by 11% from last year.

‘Diversify’ is Kamath’s instant response on the question of advice to young investors. He says, “Everybody should have many asset classes in their portfolio. It is extremely important. Outside of that, if you are buying something and things don’t go your way, you need to know when to exit.”

A general good practice is, he says, “Do not leverage; Do not trade and leverage, because it remains a lot harder to remain profitable with leverage.”

Targeting ultra-high net worth individuals

The Kamath brothers launched True Beacon, an asset management company for ultra-high net worth individuals in August last year. “Think of it as a mutual fund but for a niche audience that wants a product wherein you run algorithmic strategies, which try to make a certain lead even if the market is going up or down. These are called long-shot funds and act as a great hedge in anybody’s portfolio,” says Kamath.

Cost is a differentiator at True Beacon as well. “The only thing we charge under True Beacon is a 10% carry at the end of the year when the client has made money,” he says.

On the evolution of market over the years, the Bengaluru-based billionaire says it’s a very under-penetrated market in India.

“Even though we have so much of talk in the news and a lot of people track it, the number of people involved is a very small portion of our population. Only about 2-3% of the country’s population has direct or indirect access to the stock market. The same number, say in America, would be like 95%. We are evolving but at a very slow pace.”

He, however, believes the number is set to grow.

A lot more capital will come in the stock market over the next few years, says Kamath, as stock trading makes sense when one is looking for a better avenue to allocate one’s savings for the reasons of low taxation and drying up of other avenues like banks’ low interest rates and real estate yielding low returns.