Zerodha also hopes to lend money to people to buy more stocks using the existing shares as collateral.
As for the more important task of increasing the size of that pond, Kamath wants to create an ecosystem of startups that encourage people to invest in stocks. So it set up an incubator in 2015 called Rainmatter to invest in such fintech firms. So far it has invested Rs 14 crore out of its own profits into seven startups.
One of them is a small case. It helps people invest in trends instead of companies. While it benefits from Zerodha’s customers, it is not clear even to Kamath whether users who come to the small cases will adopt Zerodha.
Trying out different things
He is right now at a stage where he is throwing multiple darts onto a board hoping some will stick. And he doesn’t know which one will work.
But he does know what will not work.
One of them is Venture Capital.
In its early years, it would have been foolhardy to even approach VCs as the stock market was roiling. Also, Kamath felt that VCs were not convinced about the business.
And once Zerodha did get bigger, it was making money and Kamath felt that none of the VCs really had any experience in managing the broking business. He didn’t want to simply take “dumb dollars”.
“Advertising and marketing are not going to help because it will appeal only to that limited audience of five million,” Kamath says.
Being bootstrapped, the company rose to profitability making Rs 90 crore in profit last year on revenues of Rs 225 crore, according to Kamath.
And he is in a way thankful for not being funded.
“I will still be able to grow the company to double its size in four years if market conditions stay the same. But the kind of 10X growth that VCs expect, I won’t be able to do that,” says Kamath.
VCs, too, have largely stayed away from this space. According to startup database firm Tracxn, only two startups Upstox and Trading Bells have got VC funding. That too of just $4.2 million.
So coming back to what could work.
Given that he is the betting type, Kamath places his money on the increasing interest in the mutual funds. “People have lost interest in real estate. Gold as an investment option is not going anywhere. Also, fixed deposits interest rates will only go down further. So mutual funds are seeing a huge interest.”
In the last two years, Systematic Investment Plans (SIPs) in mutual funds have gone through the roof. Shenoy says the average monthly investments in SIPs have gone from Rs 1,000 crore to Rs 4,500 crore.
Given that one of the underlying reasons for a mutual fund’s success is equities, Kamath hopes it will draw people to investing in stocks.
But that could be a tall order
“Investing in mutual funds is a lot easier as it doesn’t need any Demat account and it is cheap to get into. But to start to trade in stock markets is cumbersome as one has to sign some 42 pages of documents and is time-consuming,” says Shenoy.
It is not just Zerodha. All those in the broking business are stuck in this quicksand but at different stages.
“We are not so worried about it now,” says Ravi Kumar, founder of Upstox, which got $4.5 million in funding from Kalaari. “We are focusing on building technology and also have plans to go international,” he says.
Going international is the backup plan for Kamath too.
But what all these companies are really wishing for is a few good years of the stock market. And 2017 has started on a promising note.