Why is Zerodha not Raising Funds for its operation?

Abinaya Arangarajan Abinaya Arangarajan
Aug 26, 2021 5 min read
Why is Zerodha not Raising Funds for its operation?

Some people are frightened to invest lakhs of lakhs in IPOs or shares. Because apparently, no one is ready to fund a hefty amount on any such financial startup services other than renowned organisations like Bitcoin or Cryptocurrency. But an Indian tech-finance company launched with the aim of offering retail brokerage, IPOs & Stocks, Government securities, currencies and commodities, bonds and mutual funds at a low-cost rate. If any finance platform offers a discount on the mutual fund or bonds, then people usually entice to such a maxim.

Besides, it isn't anticipating any such return from the trader or users sides. This is why Zerodha became the talk of the town in terms of generating discounts without expecting to raise its fund resource.

Factually, Zerodha is the first discount broker organisation in India with no barriers in trading. Instead of investing a huge amount in uncertain things that make us vex on second thoughts, two brothers- Nitin Kamath and Nikhil Kamath joined together in building a trustworthy relationship among investors by reducing commission on the transactions.

Both the brothers launched Zerodha in 2010, by enabling customers to buy or sell stocks on their platform. And by 2016, the company crossed over 1 lakh active clients and stands as the largest brokerage firm in India by active client base. As of 2021, Zerodha valued over 1 billion dollars with more than six million active clients.

What is Zerodha?
Why Zerodha isn't raising funds?
What are the revenue sources of Zerodha?
FAQ

How does Zerodha work

Zerodha is a barrier-free brokerage model, which offers discounts on online trading services, wherein they reduce operational costs. The firm always function with a sole aim to generate low-cost financial services to people and offers other services such as-

  • Retail brokerage, where the clients are asked to pay a flat fare of 20 rupees on the trading commodities and delivery equity is no-cost.
  • Zerodha trades wholly-owned entities or commodities to those registered clients.
  • Zerodha broke the record of generating 25% returns on the investment funds in its first year, which didn’t even happen to NIFTY.
  • Zerodha became a venture capital firm and aided other startup companies in their initial stages of business, for instance, Zerodha funded Smallcase and ERPNext startups.

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Why Zerodha isn't raising funds?

In April 2021, the founder of Zerodha Nithin Kamath repudiated offers in raising funds to their firm from notable financial organisations created a buzz in the business world. Currently, the firm is running stable for its clients without any defile. The founder cleared the air by saying β€œNo need to raise funds just because someone is ready to give it to you” and financially the firm is profitable and has zero debt.

People may wonder, how does Zerodha raise funds? But this firm is really playing astute in the business world by not investing much on marketing and advertising.

So the reason behind not raising funds is that β€˜they’re not ready to accept unwanted money just because someone is offering to’ and moreover, there is no need to raise funds as the corporation is not spending a penny on any selling-cost and ultimately becoming more profitable being a discount brokerage firm in India with a reputed brand name in the country.

Number of active clients with Zerodha
Number of active clients with Zerodha

What are the revenue sources of Zerodha?

Zerodha doesn't have a well structured and diverse revenue model but being the top used company for stock trading and with the increasing number of users turning to stock trading and in turn, leading to increased users of the platform has resulted in making the simple revenue model of the company profitable. The company earns its revenue mainly from two sources.

Transaction Charges:

Zerodha earns Rs.20 or 0.03 percent whichever is less for each and every F&O and intraday equity transaction. Futures & Options (F&O) are a major type of stock derivative trading in the share market. It is a type of contract where two parties sign to trade a stock asset at a predetermined value on a later date.

Account maintenance Charges:

Zerodha also charges its users annually for maintenance of the account of the user. The fee levied by the company on its users is Rs.300 per annum. With the increasing number of users, the company has earned quite an extensive amount that contributes to the major portion of the company’s revenue.

The company follows the principle of Low Margin and High Volume Model. That is they collect less margin for every transaction but by having a large number of users and increasing transactions, the company earns its revenue.

With the company doing its business online, the operational cost is minimal and doesn’t lead to unnecessary expenditure that would have been required in the case of a brick and mortar financial services company.


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Conclusion

The people in the current world are very informed about the happenings around them and have found that the stock market can be profitable even with the risk that comes with it, unlike years before only when few people were trading in the stock market. With the increased participation comes the need for a financial services company that offers the best services to the investors and that is safe and secure.

Zerodha has proved to be that company by charging only a discounted brokerage rate and having not faced any major violation from SEBI and other exchanges since its inception and the trust it has built with its 7 lakh and more users across the globe.

FAQ

What is Zerodha?

Zerodha is a financial services company founded in 2010 that offers services like retail brokerage, currencies and commodity trading, mutual funds and bonds. The Bangalore based company is the largest stock broker company in India in terms of active client base.

What is the revenue of Zerodha?

The revenue of Zerodha as of 2020 is INR 1,093.64 crores INR. The company earned a revenue of more than INR 1500 crores for the financial year 2020-21 which is an 80 per cent growth in the revenue from the previous financial year.

Who founded Zerodha?

Zerodha was founded by brothers Nithin Kamath and Nikhil Kamath in August 2010. Nithin Kamath was previously working as a sub-broker in Reliance money where he felt that retail investors required more and started Zerodha which is the first discount brokerage in India.

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