Nithin Kamath, India’s No. 1 stockbroker, is poised to disrupt the asset management industry with the launch of Zerodha mutual funds later this year, which will aim to simplify things for investors.
Zerodha Broking Limited is a financial services company based in India that provides retail brokerage, currency and commodity trading, mutual funds, and bonds. The Zerodha company was founded in 2010 and is based in Bangalore.
“When people decide to buy mutual funds, they are faced with a barrage of information on ELSS, hybrids, balanced funds, etc. It makes your decision of selecting a fund quite complex. The first addressable problem statement is to simplify the mutual fund investment journey, especially for the folks who are starting off,” in an interview, Nithin Kamath stated.
Unlike the big AMCs, Zerodha will only offer passive products aimed at long-term investors, rather than actively managed funds.
“I don’t think there is space for another Nifty ETF or Bank Nifty ETF. I think we want to put some goal-oriented funds like a retirement fund which is like a targeted-date fund where equity and debt keep rebalancing every year. Apart from that, there would be other passive products too,” Nithin Kamath said.
Those who are investing for retirement and are not trying to time the market should buy balanced funds, debt funds, hybrid funds, and so on, according to him.
“We are trying to make the investing experience much easier. That’s the bet that we are taking,” Zerodha co-founder said.
Zerodha Receives In-Principle Approval from Sebi
Zerodha received in-principle approval from Sebi to start an asset management company (AMC) last year and is now awaiting final approval from the markets regulator.
“We will launch it within 3 months of getting the final approval. Hopefully, it will be before the end of this year,” the Zerodha co-founder said.
Passive products are becoming increasingly popular around the world as a low-cost, no-brainer way to make money.
Active funds are finding it increasingly difficult to outperform ETFs and index funds as the market becomes more efficient. Around 50 passive schemes in India saw inflows of around Rs 1,50,000 crore last year. Passive funds, on the other hand, control nearly half of the stock market in the United States.
Even Warren Buffett has stated that index funds or exchange-traded funds (ETFs) are preferable to betting on a trending sector or stock for average investors.
“It is only going to become tougher for active funds to beat passive funds. I don’t see how suddenly active fund managers would be able to start beating indices very easily. Historically, India had that asymmetry where people would know stuff before it actually happens.”
In addition, Nithin Kamath said, “Now in the last 5-6 years, they have all been plugged. The regulator has done a great job. Everyone is going to have access to information at the same time which means that the fund manager is no more in a privileged place of sorts to get access to information that not everyone else can get”
He claims that the influx of direct mutual funds is making it easier to sell passive products, as previously only those mutual funds that were hard sold by distributors were sold.
Is it, however, a profitable business, despite all of the benefits of running passive funds?
Kamath acknowledges that generating revenue is difficult because if they charge 20 basis points and manage assets worth Rs 1 lakh crore, they will only make Rs 200 crore in revenue.
“The opportunity here is to run a lean and tech-first shop. It is a hyper-competitive market and a lot of products are commoditised. So it is not going to be easy for us to scale this business,” the 41-year-old said.
Zerodha is still bootstrapped but profitable after 12 years in business, and Kamath sees no reason to raise funds for the AMC business because it is not capital intensive, especially in the passive domain.
“Unless we lose our minds and have SRK advertise for us in the IPL, I don’t think it is going to be a high Capex business,” Nithin Kamath said.
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