Story of Fincial Planning Business

7/29/2019 Story of Fincial Planning Business

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Brokering a good deal

With a daily trade volume of 2,000-3,000 crore,the online discountbroking firm,Zerodha,has arrived.

Being the son of a bank manager,I learnt about the importance ofmoney at an early age.In fact,I had to earn my pocket money rightthrough college.Instead of opting for physical work,as so manystudents do,I decided to trade in stocks,investing whatever little I

managed to save.In the 1990s,trading was not as convenient as it istoday,and newspapers were my only source of information.Despitethese odds,I quickly developed a knack for it.I continued to dabble init even while I was doing my engineering,graduating from theBangalore Institute of Technology in 2001.The profits I was makingmade me realise that this field was my future,but then came thedotcom bust of 2001,which nearly wiped off all that I had earnedover the past four-five years.Around this time,a degree in hand,I had to decide on a job and wentfor what was then the most happening opening in the Indian jobscene: call centres.Over the next three years,I worked for twodifferent companies with the sole idea of saving enough to keep oninvesting.The job routine really worked for me as I would be free to

trade during the day.Then,in 2004,I got my first big break while I was at the gym.Aretired person of Indian origin,who had returned from the US,wantedadvice on managing his portfolio,and he agreed to take me on as hisportfolio manager,never mind that I had no professional degree toback me up.Over the next two years,I made him enough money tokeep him happy,and through hisreferrals,I ended up managing about40 other portfolios.When Reliance launched Reliance Money in2006,I spotted a chance to get into the big league,so I joined thecompany as a sub-broker.This was an important time in onlinebroking.So far,the usual charges

for trading online was about 0.03% per transaction,but RelianceMoney was the game changer,where a trader could make aone-time payment of 5,000 and then trade up to 6 crore at just 15per transaction.Before long,I became the best performer in thecompany,occasionally outperforming all the other brokers

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combinedly.During the three years that I worked at Reliance Money,I not onlykept learning new tricks of the trade,but also constantly researchedthe field to keep myself updated.This is what led me to spot alacuna in the trading businessdespite the developments in thefield,things were far from smooth and easy for traders.Over 90% ofthem wanted a simple,secure and stable trading platform to do theirbusiness,along with a strong customer feedback centre,which wouldanswer their queries.At that time,this was a bit of a pipe dream and

one way to plug the gap was to launch a new company.Another keyfactor pushing me towards the start-up route was my growingrealisation of the glass ceiling at Reliance.Finally,in late 2009,I quitthe job,and after another eight months of deliberation,I launchedZerodha in August 2010.I needed 2 crore to start and used my savings as well as fundingfrom a Singaporebased angel investor.My business idea was simple:offer lower broking costs compared with the typical brokeragecharged by other stock brokers.So we charge a flat fee of 20 forevery trade done through our platform,irrespective of volume.Incomparison,a stock broker would charge 50-100 per lot,dependingon the clients ability to negotiate,which is based on his trading

volume.In addition,we decided to concentrate on building aneasy-to-use platform for traders.To avoid client default,the platformallows traders to punch in trades only if they have money in theiraccount.We were lucky that when we launched,the National StockExchange of India was providing a free trading platform,NSENow.So,in our initial days,our traders used this free platform,but byyear-end they were able to trade on all exchanges.In fact,wemanaged to break even in just six months of operations,and this in amarket that offered wafer-thin profit margins.We knew we had hit the bulls-eye when customers came rushingin.The average number of clients has gone up from 500 per month toabout 1,500 in the past two years.All this just through word-of-mouthpublicitywe do not spend money on advertising andmarketing.Instead,we have bet on a referral system,wherein everyreferrer gets 10% of the brokerage generated from the referredtraders.To keep up with the growing number of customers,thecompanys headcount has grown from just six at the outset to about60 currently.Zerodhas daily trade volume is now about 2,000-3,000crore,or about 3% of the total trading across various exchanges perday.We also set up customer centres in Hyderabad and Kochi lastyear and are looking at setting up more centres for better customersupport.

As told to Amit Kumar

Nithin Kamath

32 years

Company

Zerodha

Headquarters

Bangalore,Karnataka

Seed capital


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2 crore

Source of funds

Personal savings,angel investor

Current turnover

20 crore

The 2001 dotcom

bust wiped off my savings from trading over four or five years.So,Ihad to work at call centres to earn,save and invest for the next threeyears.

After my stint

at Reliance Money,I realised two thingsthat things were not easy fortraders and that I would always face a ceiling at workplace.It led meto start my own venture.

We have kept

prices low by following simple methods.We do not advertise andpromote referral systems,which has helped us raise our client basewithout spending too much.


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Story of Fincial Planning Business