The leafy, upscale, largely residential neighbourhood of ‘Dollars Colony’ in Bengaluru’s JP Nagar is a very unlikely place for the headquarters of a company that has revolutionised investing for millions in India. Zerodha has very few people on the premises, which is explained by the fact that most of the 1,000 plus employees continue to work from home. The office dog, aptly named ‘Zero’, an over-friendly Indie mutt, greets us enthusiastically as it does every visitor.

From this innocuous four-storey building, two brothers — Nithin and Nikhil Kamath — who are college dropouts, have built a full-service discount brokerage business which last year on revenues of ₹4,300 crore raked in a net profit of ₹1,800 crore. Sons of a middle-class Canara Bank employee, the Kamath brothers, in a little over a decade, have become a force to reckon with on India’s financial landscape, having built Zerodha with zero external capital.

File photo

File photo | Photo Credit: BYARRANGEMENT

If you are wondering how, it is important to understand the nature of the two Kamaths, especially Nithin. Elder to Nikhil by seven years, he is the extrovert and largely the public face of the company. Both are born hustlers — in the positive sense of the term — with a yen for detail, a head for numbers, innate risk-taking ability, and an uncanny ability to see around corners.

Nithin’s story started fairly simply. He began stock trading in the late 1990s, when he was barely 17, with a few thousand rupees, supporting it with multiple side gigs such as multi-level marketing schemes like Amway to standing at a stall to earn ₹200 a day. “Because of pressure from my mother and her side of the family, I joined engineering but my heart was not in it,” he says. After dropping out, Nithin started actively trading with great initial success. However, the dotcom bust of 2000s meant the Indian market also took a beating and Nithin, not nimble enough to make the right bets, ended up with losses and loans.

Which is why starting in 2001, Nithin was left making outbound calls sitting in a 24/7 call centre as Ethan Hawke, a homage to Tom Cruise’s character in the Hollywood film Mission Impossible. He then moved to Manipal Infocom, another BPM. This continued until he met Prakash an NRI at a gym which he says was pure serendipity.

“Prakash had just returned back from the US. I told him what I did for a living. I showed him my account performance and he said, ‘why don’t you do this for me?’ and cut me a cheque for around ₹25 lakh. He is probably 30-40 years older than me, but we kind of hit it off,” says Nithin.

Then Prakash introduced Nithin to his friends and he started managing money for them as well. As more customers joined, it became tough for Nithin to log into multiple accounts and manage their money. “So, I thought, why not become a sub-broker? As a broker, one gets a platform on which one can advise multiple customers,” he says.

Sub-broker with Reliance Money

Nithin took up an office on Bannerghatta Road in Bengaluru and became a sub-broker with Reliance Money. It was christened Investments Unlimited but changed to Kamath Associates, when Nikhil joined the company after a few months. “This is when I started actively engaging with a broking firm. Until then I never really got to know what is happening behind the scenes so as to engage with the Reliance Money team. I used to set up the stalls to open accounts in different offices, etc,” says Kamath.

This is when Nithin’s other two pseudo-names Tarzan and Columbus, played an important role. He had been active online since 2001 under these two pseudo names, building stock trading communities on Yahoo Messenger (up to 2,000 people strong) and Orkut (10,000 or so). He leveraged these communities to find customers.

By 2007, Nithin had started trading on the NSE platform called Neat On Web (NOW), which was a free trading platform for brokers. “I found the idea very interesting that if you become a member of an exchange, you get a trading platform free. So, once there was some money, the question was if a trading platform was to be had for free, what does it take to become a broker,” says Kamath.

At that time, everyone had a common problem of high brokerage fees, the opaque nature of brokers, and inaccessibility — it was impossible to find the right person to interact with, says Nithin.

In 2010: Zerodha was born

So, he set up a website in 2010 that was supported by a blogging engine as Nithin had started blogging, too. The platform offered a flat fee of ₹20 for each trade and put out a brokerage calculator to tell customers that what they saw there was what they would pay. They also put up a blog saying customers can reach out to Nithin Kamath, CEO of Zerodha, any time.

So, it was the Nithin and Nikhil (co-founder and CFO) along with Venu Madhav (COO), Sameer (Head of Risk Management Team), Hanan Delvi (Chief Client Relations) and two office boys who started Zerodha in 2010.

For Zerodha, getting the first 5,000 customers was the hardest. Nithin recalls that it involved quite a lot of cold calling and the Kamaths leveraging some of their old pseudo-names.<EP>In 2011, Zerodha got its first media coverage and from there the credibility shot up. It went on to open some 300-400 accounts a month and then to 700-1,000 accounts a month.

Meet Kailash Nadh, CTO Zerodha

In 2013, Nithin met Kailash Nadh, who today heads Zerodha’s tech team. “He is really the reason why Zerodha is where it is today. I and Nikhil get some credit for it, but in reality, he’s the one who should be getting most of the credit. He doesn’t like to be called co-founder because he joined in 2013. He wasn’t really there for the first two years,” says Nithin.

Towards late 2012, Zerodha’s first competitor, Upstox, entered the market offering a similar value proposition. This pushed Nithin to think about a new business moat and his meeting with Nadh paved the path for Zerodha’s technology foray.

Nithin had been investing in tech start-ups from 2008-09. Nadh was part of one such start-up, Sensible. So, 2013 is when Zerodha’s tech journey started and in 2015 it launched Kite, its flagship web and mobile app for trading.

Thanks to Nadh, Zerodha is completely built on free and open source software (FOSS) and is also one of the biggest contributors to FOSS in India. Nithin says that it is because of using FOSS that Zerodha has high margins.

When Aadhaar for online onboarding started

“The tipping point in this journey was really Aadhaar for online onboarding around 2016- 2017. Because until then account opening involved physical forms, running to 30-40 pages and a slew of signatures, often a lengthy process. So, once online onboarding started, it allowed us to start scaling up quickly and our drop offs started reducing. In 2017, we also launched Coin, which is a direct mutual fund platform,” says Nithin.

By this time Zerodha’s ambitions had also grown. Initially, Nithin thought the business was going to reach a maximum of 100,000 people, mainly active traders and not investors. However, with the launch of Kite, the team was exploring if there is an opportunity to build a business for an investor audience as well.

“The problem for us at this point of time was that the business was getting labelled as ‘only for active trading’. We wanted to break that image so we decided to announce zero brokerage for equity investing. This created mega publicity for us and helped break the image,” he says.

20 lakh to 1 crore customers in 2 years

As soon as the Covid lockdown happened, the number of people wanting to invest and trade went through the roof. “We were 20 lakh customers just before Covid and we touched 1 crore last week. Out of these, 70 lakh people have traded once a year in the last year,” he says.

Nithin believes Zerodha’s decision to keep charging an account opening fee is one of the major reasons for the company’s high activation rate.

“Once Aadhaar onboarding started, our cost of opening an account dropped significantly. We were charging ₹500 earlier, so we reduced it to ₹200, but we continued charging account opening fees. This was done because we want only people with intent to open an account, otherwise we would have opened a lot more accounts and they would have only added to the compliance cost,” he adds.

Future outlook

Nithin says the underlying market is the biggest risk for the broking industry. Both in terms of new account opening and participation of the existing customers, it all depends on the underlying performance in the market.

In the long term, Nithin wants to build an investment advisory product. He believes that the account aggregator framework, which the Indian regulator is currently working on, will be a UPI-moment for the advisory business. As soon as the account aggregator framework goes live, Zerodha will also launch its advisory product.

Giving back

The Zerodha team has set up Rainmatter Foundation as a way of giving back. Through Rainmatter, it actively invests and incubates fintech companies and has a portfolio of about 20 start-ups such as Finshots, Smallcase, and Stoa. Also $100 million has been allocated to Rainmatter Climate, which invests in both for- and not-for-profit organisations working on climate change, creation of livelihood, etc.

Forty-two-year-old Nithin has started thinking of succession and the potential of businesses. When not working, he listens to David D. Brown’s podcast Business Wars or jams with his son who plays drums to Nithin strumming a guitar. On his indulgences, Nithin says he likes his drink and enjoys travelling with his family.

10 things you didn’t know about Zerodha’s Nithin Kamath
  1. Nithin Kamath and Tariq Premji (son of Wipro Chairman Azim Premji) were co-workers at 24/7 call centre in 2001.
  2. Nithin has used pseudo-names like Sachin, Tarzan, Columbus, and Ethan Hawke on internet forums and during cold calling while working at a call center.
  3. Nithin is a telecom engineering college dropout from Bangalore Institute of Technology (batch 1997-2000).
  4. Nithin was introduced to stock trading by his neighbours in VV Puram, a neighbourhood dominated by the Marwardi and Vysya communities.
  5. Nithin started stock trading online on ICICI direct and is an ace poker player.
  6. Nithin drives a Mercedes-Benz S-Class which was gifted by his brother Nikhil Kamath earlier this year.
  7. Nithin plays the guitar and his son Kiaan plays the drums and they both sometimes jam together.
  8. Nithin’s salary at his first job (24/7) was ₹13,000 excluding incentives.
  9. Nithin and Nikhil Kamath’s first venture was called Kamath Associates when they were a sub-broker with Reliance Money.
  10. They also called themselves Investments Unlimited before naming themselves Zerodha — a Sanskrit-English admixture indicating zero barriers.