Nikhil Kamath is the co-founder of Zerodha, India’s biggest stock brokerage company in terms of volume of trade, and of True Beacon, an asset management company (AMC) focused on ultra-high net worth investors. 

Kamath started equity trading at the age of 17, having dropped out of school two years earlier to play in the Indian National Chess Championships. 

He co-founded Kamath Associates at the age of 19 to manage high net worth individual portfolios in the public markets and launched Zerodha with his brother Nithin in 2010.

Zerodha offers trading in equities, bonds, currencies, commodities and mutual funds. Opening an account on Zerodha costs an investor INR 300, and equity delivery investments are free. Securities transaction tax is charged variably for equity delivery, equity intraday, futures and options. Other costs include a transaction fee, the government-mandated Goods and Services tax and stamp duty charges. 

In addition to Zerodha, Kamath co-founded True Beacon, which helps ultra-high net worth individuals invest in the Indian markets via privately-pooled investment vehicles, in 2019. The AMC does not charge an account opening fee, redemption fee, maintenance fee or management fees, but instead charges a 10% performance fee on the gains at the end of the financial year from the investor.

He also invests in companies to drive innovation aimed at bringing financial inclusion via an incubator and venture capitalist fund, Rainmatter.

Kamath is an antiquarian and likes to collect vintage watches and art, specifically ones with a historical context. 

In a conversation with Forbes Advisor India, Kamath spoke about his hope to make equity investing a part of India’s saving culture and building products around the many problems in India’s financial ecosystem.

How can the Indian financial ecosystem transform?

In India, only about 6-7% have direct or indirect access to the equity markets as compared to a developed economy such as America, where this penetration is about 95%. In terms of broking, India is still a very, very nascent industry. 

Banking itself is not very well penetrated in India. Only about half the country has access to functional bank accounts, and the lending mechanism in India is still not very efficient. India has a huge scope to grow in terms of different kinds of products that can combine and for lenders of all kinds to experiment with different offerings.

India is a very underinsured country, and I think the margins for insurance companies have to be lower and the premiums for the end user have to be higher and technology can play a big role. New age insurance technology companies have brought in a lot of technology for the user experience but at the back end they still work like traditional insurance companies. 

In the asset management space, not much has changed in the last 10 or 20 years. We see people following the same model. When I go to a distributor, the distributor charges me 1-2% and sells me a third-party product. The fund manager then charges me another 2% a year immaterial of what the performance is or if he gives me a return better than the exchange or not. 

With every aspect of finance, there is significant room to change and evolve. Only time can determine which all aspects are worked on.

How are you enabling the Indian financial services market?

I think we are taking away inefficiencies from the market with both Zerodha and True Beacon. 

Our attempt is to identify where the problems are in the financial ecosystem and if we can add value, then we will definitely go out there and build a product.

For example, Zerodha is working well because there are 100 different tiny efficiencies, which we do better than the next guy. We are very transparent in a world where our peers are very murky, and they have all kinds of hidden charges. We’ve made Zerodha’s mutual funds offering Coin a completely free platform, which helps the end user or the retail investor save a lot of money in the investment process. With no revenue coming to us from Coin, we don’t profit from running that as a business, but it’s okay because we kind of take away one inefficiency from the market. 

With True Beacon, the idea is not to compete with other asset management companies or other brokers but it is to grow the market because our market in totality is really small in India. We don’t like taking money from people like politicians and real estate owners, among others. Our crowd is essentially corporates, promoters of listed companies, tech founders; that’s the kind of audience we typically go after, and we’ll kind of limit it to that.

What have been your biggest learnings?

I think people often overcomplicate a product. I think any problem in the world has, at any point, many given solutions; any problem “x” can be solved in five different ways. People tend to complicate the solution in order to charge more fees or, for their own interests. Often you figure that the simplest solution is the best one. I think that has been my learning. 

Another one is to always start a business with the intention that if it can work for 100 people, it should also be able to scale to a million people and building your business from that mindset from the very beginning, I think helps a lot. 

What has empowered you?

We’ve been in a very privileged position of not having external investors so we don’t really run our decisions by a board of venture capitalists and private equity firms who don’t typically understand the business as well as we do. So, I think that in itself has made us very agile. It keeps us nimble, and it allows us the ability to make decisions really quickly and change and evolve faster than the next guy. 

If a competitor is somebody who is a large bank, or who is a startup with 10 different investors, it might take them up to a month to figure out what they should do and make the decision because they have to have every party vetted in a way but it might take us only one day because we don’t have that deterrent. And I think that is a huge advantage; in any space agility is a bigger one. 

I think when you’re not answerable to anybody, you don’t really have to do business only to make money or think about shareholders. You tend to do things which are fun, which are interesting and without the end goal only being money, like a business with too many shareholders might have to do. 

What would your advice to a new entrepreneur venturing out in the finance industry be? 

I would say spend as much time researching the industry that you want to be in as you do as with the company that you’re going to build or the product you’re going to work on. For example, if you were in the wallets business, and you want to build a product right now, it makes absolutely no sense because wallets as a use case no longer really exist in a way that they did maybe five years ago. So pick an industry at the right point in its cycle where it has a burgeoning rate of return, or you can hope for an inflection point soon enough. I think that’s very important. 

You have to pick an industry that you think will do well in the next 10 to 20 years. And then think of a company and a product to open in that industry. Little too often, we get stuck in a box, thinking of a product without figuring out how much it can actually scale to whenever the industry is growing with or without your product being a part of it. 

What would you like the government to do to promote investing in India?

To pay tax on income earned is one thing, but to pay statutory taxes when you’re not really earning a profit and it’s making your business very inefficient, I think something has to be done about that. Things like security transaction tax and stamp duty and the likes, you pay them even when you’re losing money as an investor or a trader. I think these hinder the industry and makes it a lot less robust and something has to change. 

If I were to give you an even more specific example in our industry, Category III AIF (alternate investment funds that can make investments in both unlisted and listed derivatives through leverage) is not taxed very efficiently in India. We want something called pass-through taxation, wherein the funds do not pay the tax, but we transfer the money back to the user who invested and he or she pays tax according to the bracket he falls in. It’s such a good product, it brings billions of dollars from foreigners into India. A simple tweak I think would definitely help the ecosystem and just bring in a lot more foreign capital into India, which we desperately need right now. 

What is driving Indian youth to the stock markets?

The average age of an investor in the last six months has come down to 30 from what it used to be earlier; between 32 to 35. 

A lot of people have started investing in the markets because of the pandemic. It could be because of the interest rate cycles going down and the real estate industry not doing well and people running out of avenues to allocate capital.

I think a bunch of good regulations have come by, which have helped the industry and are helping retail investors stay profitable for longer in a way as well. About a year and a half ago, the stock market regulator made it easy for brokerage firms such as ours to onboard a client, wherein we could do the entire process online. I think that has added to the significant number of new accounts coming in. Even now, the regulator is rationalising the amount of leverage and margin a retail user has access to in the market. So this will keep the new users coming in to be a little more disciplined than earlier. 

What motivates you? 

I don’t think money is such a big motivation anymore. I think people motivate me. I feel it’s very, very important and often underlooked to like the people you go to work with every day and I think that is a big motivating factor. 

And outside of that, I would be lying if I said, I have some deep inert motivation, which is kind of driving me. You take each day as it comes in and you hope to be motivated in three out of seven days, but otherwise we live in a really bleak world right now and there is really not much to do. So there isn’t a lot of motivation at this point.