[ad_1]
35-year-old Nikhil Kamath and his brother Nithin co-founded Zerodha, India’s largest trading platform, in the southern Indian city of Bangalore in 2010.
Zerodha-the name is a combination of “zero” and “rodha”, a barrier in Sanskrit-only a few years ago it gained its one thousandth user. Today it has 4.5 million monthly active users and is the largest trading platform in the country quantity.
Kamath grew up mainly in Bangalore, and dropped out of school after 10 classes at the age of 16, which is not common for people from middle-class families. His father works in a state-owned bank and his mother teaches Kanatic classical music.
Kamath talked to Al Jazeera’s Megha Bahree about dropping out, establishing Zerodha, the ongoing stock market in India, and True Beacon, his latest venture to manage assets for the super-rich.
For clarity and length, this interview has been edited.
Mega Barry: You come from a middle-class family, and dropping out of school is not the norm. How did that happen?
Nikil Kamas: I don’t like learning very much. Around 10th grade, I started selling second-hand mobile phones. The strange thing is that this business is doing well. This situation has evolved into some other small businesses. When I was about 17 years old, I joined a call center. This was my first full-time job. I started trading stocks.I work in uk [United Kingdom] Shift between 5 pm and 1 am, which gives me time to trade in the morning. This quickly evolved into some of my friends and colleagues managing funds. This is the very beginning of asset management. I withdrew from the call center when I was almost 20 years old, because I started to make a little money trading, and my brother Nithin and I started car trading together.
Mega Europe: Did you enter the trade because you had access to it through Nithin?
NK: Partly through him, partly through friends. Trading is a very independent journey: you can’t really copy another person’s way of trading, it’s very individualistic, just like what works for me doesn’t work for him. I am a deputy broker of a company and they charge me brokerage fees for my clients. They will give me 60% and they will keep 40%, but this is a very inefficient way of doing things because you have to pay taxes twice. Therefore, we decided to start the brokerage business. The purpose is that Nithin will focus on the brokerage business. I will focus on trading. This is our main business, and trading will guide and develop the brokerage business in some way. Therefore, we don’t even have any investors today.
Mega Europe: But why don’t you contact any investors today? Do you no longer need it?
NK: Yes, we kind of don’t need it. We really do not do any advertising or marketing. So there is no purchase cost. This is where startups usually spend money, so our need to raise funds is low.
Mega Europe: What makes you think you can succeed?
NK: People at the time charged up to 0.5% of turnover-the amount of stock purchased-as a brokerage fee. After paying such a large brokerage turnover for each transaction, it is not feasible to maintain profitability. So we just charge a fixed fee of 20 rupees ($0.27) for each transaction, which works well. Due to the large difference in costs, many businesses have emerged. The growth was slow in the first few years; it was organic. We are under some pressure because we are different. And we are still young. In the process, we invested more in technology and built products internally to get a better user interface, all of which helped Zerodha enter the next growth trajectory, which is the past six or seven years.
MB: You said you don’t spend money on marketing. So is this all word of mouth?
NK: I think it took us a year and a half or two years to get our thousandth customer. To some extent, fintech is a reputation business, and people need to know you before they can deposit their savings into your account. Therefore, it took quite a long time before we started to really expand.
Mega Europe: What caused the increase in numbers and customers?
NK: The market benefits stockbrokers and fintech companies to some extent. Because of this, we also benefit from it. Usually, the way retail investors work is that if you want to make a profit, you log in to the terminal every day, buy and sell. However, if there is a bear market and your portfolio drops by 30%, then you will shut down your computer and do not watch it for the next year. The psychology is very similar. No one likes to accept losses, but everyone wants to be proactive and honor when profits occur. The potential cycle of the market helps everyone more than anything. We may have eaten away some of the businesses of people with higher fees. Some of the business we get comes from newcomers.
Mega Europe: What is your average customer profile?
NK: Typically, customers are around 30 years old and there are approximately $1,000 in the account, of which approximately 84% are males and approximately 16% are females.
Mega Europe: You make more money from day traders than stock investors, so why should you add more stock investors?
NK: In the long run, I think that customers with equity and long-term portfolio types will add a lot of unity to the platform. These are not people who come and go. These are people who will always exist.
Mega Europe: Do you think this can also be integrated into your new asset management business, True Beacon?
NK: No, there is no similarity between the two companies. When we started asset management, the question was, should we target everyone? Or, if we earn fees based on the assets we own, should we only target the top where most assets are? Therefore, True Beacon focuses on this.
Mega Europe: Isn’t this a crowded field?
NK: There are many, yes, but the problem is that they are very inefficient. They may charge you a 2% fee to set up a fund for you. This is basically an introduction to the fund manager. If you make money or not, he will charge you 2% every year. Then there is a lock-up period and you cannot withdraw your money without a fine. It is not very transparent and you do not know how your funds work every day. With True Beacon, we are working hard to eliminate all such inefficiencies. So we said that we won’t have any middlemen, we won’t go through the distribution model, you have to find us. We do not have an annual management fee of 2%. This 2% doesn’t sound like much, but if you compound it within 20 years, it’s as if 50% of your principal has been paid in fees. Instead, we charge a 10% profit. This keeps us in line with our customers, because if for any reason there is a bear market and the customer does not make money within three years, we do not make money either.
Most importantly, we make it very transparent. There is a dashboard where you can log in every day to see what your money is doing. If you want to withdraw funds, just click a button. These isolated little things are small, but we believe that in the long run, increasing transparency and cost efficiency will greatly help people.
Mega Europe: So what is the target audience?
NK: Our typical audience is basically billionaires in India and around the world, foreigners entering India, and very savvy investors with family offices. What we are also trying to create is this community with comprehensive influence. For example, our client is one of the largest cement companies in India. We can connect them with one of the top bankers in the country who is also our client. If they need anything, they can talk directly, and when you reach the top, these things will close faster. Therefore, we are building this most influential pool of people on the network. We mainly manage their funds, but our idea is to finally use their network and create a comprehensive influence platform.
Mega Europe: Unless you plan to charge for additional services, why would you do this?
NK: We will have to monetize it at some point. Our idea is to become an old-fashioned commercial bank, or a differentiated private bank. We want to formalize this network and put it on a platform, a closed platform, where these people can communicate with each other under the umbrella of True Beacon. This is like a mutually beneficial society. We should have some kind of product that facilitates these connections at the end of the fiscal year.
Mega Europe: Turning to retail investors, the market is at a record high. Do you have any predictions about their whereabouts? How long will this game last?
NK: This is obviously a bubble. But you know, in our lives, we have all been victims of mass hysteria, and this is how the stock market works. Now, people buy because you know that some of their friends bought something and made 50%, not because they like a certain business. Some of them are crazy. The price-to-earnings ratio of a company I’m looking at is 140 times, which is the ratio of the company’s stock price to its earnings per share. It manufactures washing machine parts. Why the business should trade at 140 times the speed is completely meaningless to me. What the retail industry does not understand is that when you buy a business at a price-to-earnings ratio of 140 times, what you are talking about is the money you invested today, and the company must earn you the same amount of money in the next 140 years. People are actually betting, which I think is ridiculous. I think the overall valuation is highly exaggerated. People should be cautious and truly diversify their investments, not just between different stock classes, but buying some gold and buying some risk-free fixed income.
Mega Europe: In the past 1.5 years, retail investors have poured into the stock market, and you have seen this on your platform. How did that happen? Is it blocked?
NK: If you entered the market a year ago and you only saw the market rise, then the hindsight bias is like this, and you would expect this to last forever. You may be preparing for disaster. Let me give you an example. One of my clients applied for the most recent IPO [initial public offering] Forging company Rolex ring, under all his family members, like about 10 different people, he can do the largest number. When I asked him why, he said, I like watch brands. So this is the kind of euphoria. Very scary.
Mega Europe: What is your recommendation for first-time investors?
NK: diversification. Stay away from leverage. Expectations of the market must be reasonable. In most cases, people lose a lot of money in the market because their expectations have nothing to do with reality. If you are expecting a 40-50-60% return when you enter the market, then the stock market may not be for you. If you enter the market and earn 10% to 15% per year, that’s a lot. If you can get a 15% return, then you can double your capital through compound interest within four and a half years. Come in with a plan you can try.
Mega Europe: Do you think this investor boom in the stock market will continue?
NK: I think this will continue for a while. There are still too many skeptics like me in the market. Usually, the market is correct when there are no doubters. All short sellers like to go short without meaning. Let us buy and follow the trend. We haven’t arrived yet. But we are not far from the top.
[ad_2]
Source link