Zerodha Wiki: A Comprehensive Guide to the Bootstrapped Startup

Zerodha was founded by Nithin Kamath in 2010, initially as a small startup with a team of just three people.

The company's early days were marked by bootstrapping, with Nithin Kamath using his own savings to fund the business.

Zerodha's initial focus was on providing low-cost trading platforms for Indian investors, which quickly gained popularity due to its user-friendly interface and competitive pricing.

The company's growth was rapid, with Zerodha's revenue increasing from ₹1.5 crore in 2010 to ₹1,000 crore in 2017.

Zerodha was founded in August 2010 by brothers Nithin and Nikhil Kamath.

The company's name Zerodha is a combination of the words "Zero" and "Rodha", the Sanskrit word for "barrier".

As of 2019, Zerodha was the largest retail stock broker in India by active client base.

Zerodha contributes up to 2% of daily retail volumes on Indian stock exchanges.

In June 2020, Zerodha entered the "unicorn club" with a self-valuation of around $1 billion.

This valuation was based on the ESOP buyback exercise that the company undertook by valuing each share at more than four times the book value of ₹700 per share.

A fixed commission of up to ₹20 is applied to all trading and derivative transactions, regardless of its size.

Zerodha offers its retail clients a host of purpose-built trading applications.

Equity delivery is free.

The founders of Zerodha are two brothers, Nithin Kamath and Nikhil Kamath. They share a passion for trading and entrepreneurship.

Nithin Kamath, the older brother, is an alumnus of the Bangalore Institute of Technology. He initially worked as a Proprietary Trader and later held roles at Manipal Infocom and Kamath Associates.

Nikhil Kamath, the younger brother, dropped out of school at 16 and started trading in his leisure. He later managed some money from friends and colleagues, gaining experience in asset management.

Nithin, the founder and CEO of Zerodha, had a remarkable trading career that spanned over a decade, with a significant loss in the 2001-02 stock market crash.

He managed to recover and eventually landed a cheque from a foreign HNI to manage his money, which he did along with landing a job at Reliance Money, where he served as a sub-broker.

Nithin was one of the most successful sub-brokers at Reliance Money, breaking volumes of more than 1000 sub-brokers at once.

However, he again lost a considerable amount of money in the market crash during the global financial crisis of 2008-09.

After this, he decided to change ways and started to develop an idea of building a company that will provide online stockbroking services for all the traders of the country, which will be simple to use and affordable.

The founders, Nikhil and Nitin, founded Zerodha, but it took a long time for them to establish a market standing, a slow transition that happened over the last decade.

Zerodha, in its first year, opened 3,000 accounts, which was a significant milestone for the company.

The founders focused on building a community for the traders, which helped them overcome the initial doubts of the traders towards Zerodha’s discount broking model.

To counter this challenge, Zerodha launched Varsity, a learning module that has become immensely popular.

Zerodha also launched Coin, an online platform to buy mutual funds directly, which further differentiated the company from the rest of the market.

Zerodha didn't spend any money on advertising, relying on word-of-mouth and the community they built to promote their services.

Nithin Kamath is the Founder and CEO of Zerodha and Rainmatter Foundation. He's the older of the two founder brothers of Zerodha.

Nithin attended the Bangalore Institute of Technology and was initially self-employed as a Proprietary Trader. He later served as a Senior Telesales Executive at Manipal Infocom and as a Partner at Kamath Associates.

Nithin started trading in the Indian stock market at the age of 17 and managed to make a fortune by trading in stocks. He lost a significant amount of money in the stock market crash of 2001-02, but eventually landed a cheque from a foreign HNI to manage his money.

Nithin's experience as a sub-broker at Reliance Money was highly successful, breaking volumes of more than 1000 sub-brokers at once. He even managed to get many big clients for the company.

After the global financial crisis of 2008-09, Nithin decided to change his approach and started developing an idea to build a company that would provide online stockbroking services for all traders in the country.

Zerodha offers a range of trading platforms, including Kite, Console, and Pi.

Their flagship platform, Kite, is a browser-based trading platform that allows users to trade in stocks, futures, and options.

Zerodha also offers a mobile trading app called Kite Mobile, which provides users with the ability to trade on-the-go.

Their trading platforms support various order types, including market, limit, and stop-loss orders.

Zerodha's platforms also provide real-time market data, charts, and technical indicators to help users make informed trading decisions.

Pi is a browser-based trading platform that offers advanced features such as algorithmic trading and backtesting.

Zerodha's platforms are also integrated with various bank accounts, making it easy to fund and withdraw money.

Coin is a fantastic platform for investing in mutual funds. It offers a wide range of schemes from over 40 mutual fund houses.

You can invest in thousands of equity, debt, hybrid, and ELSS tax-saving schemes on the platform. This makes it easy to find the right investment for your needs.

Coin was launched in April 2017 as Zerodha Coin Web.

The Kite Connect API is a powerful tool for developers to create trade applications and interface them with Zerodha's trading platform.

It offers a number of capabilities that make it a go-to choice for many developers.

Developers can use the Kite Connect API to create a wide range of applications, from simple trading interfaces to complex analytical tools.

The logic behind charging per executed order fees may seem counterintuitive at first, but it's actually quite straightforward. The cost of executing a trade for a brokerage firm doesn't increase with the size of the trade.

This means that if you buy 1 lot of options and someone else buys 10 lots in the same order, the brokerage firm incurs the same costs for both. With this in mind, charging a fixed fee per executed order makes perfect sense.

Zerodha, a pioneering discount brokerage firm, decided to adopt this model and charge a fixed fee of Rs 20 per executed order, regardless of the size or contract. This approach is called Discount Broking, which originated in the US and is now used by over 80% of the market turnover in the country.

By offering a fixed fee, Zerodha aims to make trading more accessible and affordable for smaller volume equity traders, who can now choose between a 0.01% fee or Rs 20, whichever is lower. This approach has been instrumental in making Zerodha a leading discount brokerage firm in India.

Discover more: Amo Order Timing in Zerodha

Zerodha's business model is built on a "low margin and high volume model", where they charge minimal fees to traders, resulting in high trading volumes and revenue generation. This approach allows them to maintain low operational costs due to their online structure.

Their revenue model is primarily driven by a commission and fixed fee structure, where they charge a maximum brokerage of INR 20 per transaction, regardless of the transaction value. This fee structure enables them to generate revenue from a high volume of transactions.

Zerodha's goal is to attract a large number of transactions to their platform, which is achieved by providing high-quality services at a competitive price. This volume-based revenue model can generate significant revenue despite the fixed fee per transaction.

Here's a breakdown of Zerodha's financials over the years:

Zerodha's revenue has shown significant growth, with a 38.5% increase in FY23 and a 22% increase in FY24, while their profits have also risen by 39% and 62% respectively.

Zerodha's business model is built on a "low margin and high volume model", which means they charge minimal fees to traders for transactions, resulting in high trading volumes and good revenue generation.

This approach allows them to collect smaller amounts from a large number of clients, leading to significant revenue.

Their online structure is a key factor in keeping operational costs low, unlike traditional full-service brokers.

Zerodha's focus on low fees and high volumes has led to substantial revenue growth, with operating revenue increasing from INR 2,729 crore in FY21 to INR 8,370 crore in FY24.

Their commitment to this model has paid off, with profits rising from INR 1,122 crore in FY21 to INR 4,700 crore in FY24.

Here's a breakdown of Zerodha's revenue growth over the years:

Zerodha's innovative approach to trading and investments has enabled them to achieve remarkable growth and establish themselves as a leading player in the Indian financial market.

Zerodha created a new ESOP pool for its employees as of November 1, 2021, allocating around 7,00,000 options.

The company issued another ESOP pool estimated to be worth around Rs 100 crore at the beginning of Q3 2022.

This ESOP Plan 2021 was created under the regulatory filings of the company with the Registrar of Companies (RoC).

Zerodha, despite its success, faces notable challenges in the brokerage landscape. Technical glitches during heavy trading periods and low customer satisfaction are some of the issues it's struggling with.

Its customer service system lags behind top brokers, and the lack of informative resources like news alerts and daily reports is a turn-off for investors. However, Nithin Kamath, the founder, is actively working to resolve these problems.

Zerodha's growth highlights are quite impressive, with over 1.3 crore customers trusting the platform in the Google Play Store as of March 2024. This is a testament to its popularity and reliability.

Here are some key growth statistics:

Despite these growth numbers, challenges remain, and Kamath predicts a possible market correction that may impact growth in the upcoming months.

Zerodha, a prominent player in India's brokerage landscape, faces notable challenges, including technical glitches during periods of heavy trading.

Customer satisfaction with Zerodha has been diminishing, and its customer service system lags below that of other top brokers.

Zerodha doesn't provide important informative resources like news alerts and daily reports, which reduces investor attraction.

The company's founder, Nithin Kamath, is aggressively resolving these problems by introducing features like the nudge feature, which aims to provide traders with well-informed tools for making decisions.

The killswitch is another tool being used to stop losses from occurring continuously.

Despite efforts to improve, challenges remain, and Kamath predicts a possible market correction and an ensuing slowdown in growth in the upcoming months.

To preserve its reputation, Zerodha is dedicated to improving the customer experience and overcoming these challenges.

Zerodha has made significant strides in its growth, with an impressive 75+ branches and partner offices as of March 2024. This extensive network enables the company to cater to a vast number of clients.

Over 1+ crore clients place millions of orders every day as of March 2024, showcasing the company's ability to handle high volumes of transactions efficiently. This level of activity is a testament to the trust that clients have in Zerodha.

According to the Google Play Store, Zerodha is trusted by over 1.3 crore customers as of March 2024. This staggering number highlights the company's popularity and reputation in the market.

As of October 2023, Zerodha had 6.4 million active customers, demonstrating the company's ability to retain and engage its user base.