This research study is by Om Prakash Aditya from the batch of July’21-22. He graduated with BA (Eco and English Literature) degree from Delhi University in the year 2018. Prior to opting for a career in Risk Management, he was working as the core team member at Leaders for Tomorrow. According to Aditya, a career in risk management in India promises exciting opportunities across all verticals of the industry. It involves a thorough study of the processes, strategies, and objectives of a business and then identifying and mitigating the risks associated with them. The value that it adds to business in terms of risk assurance translates to immense career growth for risk management professionals.

Here’s a case study by Aditya on Zerodha:

By Om Prakash Aditya, PGDRM July’21-22

WHAT IS ZERODHA?

Zerodha Broking Limited is an Indian financial services company offering retail brokerage, currencies and commodities trading, mutual funds, and bonds. Founded in2010 by Nikhil Kamath and Nitin Kamath, the company is headquartered in Bangalore. Zerodha attained a self-assessed valuation of over $1 billion in 10 years. The fastest bootstrapped startup to do so. Zerodha is the largest retail stockbroker in India with a client base of 5 million users. Zerodha contributes more than 15% of daily retail volumes across all Indian Stock Exchanges.

ZERODHA KMPs

ZERODHA TIMELINE

BEFORE ZERODHA

Before Zerodha, there were 3 major hurdles troubling the existing Investors which were preventing the common people from investing in the market.

1. Lack of Knowledge and awareness: The Market operated mostly on Myths and emotions rather than knowledge and strategy.

2. Exorbitant Brokerage Fees: The conventional brokerage firms charged a percentage of total earnings from their client, leading to huge brokerage fees.

3. Very Complex Process of Investing: The process involved a lot of paperwork, and the process was difficult for the common investor to understand.

WHAT ZERODHA CHANGED

1. ZERODHA Varsity: To tackle the lack of awareness in the market, Zerodhalaunched ZerodhaVarsity, which is an extensive collection of the stock market and financial lessons aimed at enabling the common investor to gain enough knowledge about Investing.

2. Discount Brokerage fees: Zerodhalowered down brokerage fees to such an extent that it literally resulted in a revolution. Instead of charging a percentage of profits, Zerodhastarted charging Rs. 20 or 0.03% for all intraday trades, while making equity and direct fund investments completely free of cost.

3. Web-Based Service with a simple UI: To tackle the cumbersome process of investing, they developed a User-Friendly Website and Mobile Application to make it very easy to invest in the market.

BUSINESS MODEL

Low Margin and High Volume:  Zerodhacharges a free to a very minimal amount to the dealers for transactions because of which the trading or exchange volume is generally high. This fee collection of smaller amounts from a larger number of clients leads to good revenue generation for Zerodha.

Total User Base: 5 million active users.

Charges per trade (F&O): Rs 20

Avg no. Of trades per day: 3 million.

Avg operating daily revenue: approx Rs. 60 million.

Low Operating Costs: Zerodhais able to keep its operational costs low because of its completely online structure. It also invests in the continuous development of its UI to keep it user-friendly to attract more users to its platform.

Diversification

Zerodha has diversified its core business to include partners like SmallCase, Streak, and Sensibulland GoldenPi which offer specialized platforms for Investments, Algo and Strategy, Options Trading, and BondsTrading. These platforms help Zerodha in retaining a customer base looking for a more specific platform for their needs.

SERVICES

EQUITY TRADING

Equity trading refers to Trading i.e. buying and selling Company shares on the equity markets with an intent to profit from the purchase/sale of these securities. Equity markets are divided into two segments, Primary market (IPO)and Secondary markets (OTC).

DERIVATIVES TRADING

Derivatives Tradingisa contract between two or more parties where the derivative value is based upon an underlying asset. Traders speculate on the future price of the asset to buy/sell on expected gains from the price difference.

CURRENCY TRADING

Currency trading often referred to as foreign exchange or Forex, is the purchasing and selling of currencies in the foreign exchange marketplace, done with the objective of making profits.

COMMODITIES TRADING

A commodity market is a marketplace for buying, selling, and trading raw materials or primary products. Commodities are often split into two broad categories: hard and soft commodities. Hard commodities include natural resources that must be mined or extracted—such as gold, rubber, and oil, whereas agricultural products or livestock are soft commodities.

MUTUAL FUNDS

A mutual fund is an investment vehicle where many investors pool their money to earn returns on their capital over a period. This corpus of funds is managed by an investment professional known as a fund manager or portfolio manager.

BONDS/G-SECS

Zerodha provides a platform for users to buy and sell Bonds and allows tax-free interest incomes.

PRODUCTS

COIN

Zerodha Coin is an order collection platform that lets you buy mutual funds online, with no commission pass back, directly from asset management companies. Your mutual funds, stocks, currencies, bonds, and more, all in your DEMAT account accessible in one place. Coin charges0%commission direct mutual funds and Govt, corporate, and gold bonds and is India’s largest direct mutual funds platform.

VARSITY

Varsity is an investor education & learning platform from Zerodhawherein investors can learn the nuisance of investing in the stock market. ZerodhaVarsity provides a collection of stock market lessons along with in-depth coverage and illustrations in easy-to-understand language.

SUBSIDIARIES

Rainmatter Foundation

Zerodha set up Rainmatter Foundation, a non-profit foundation that aims to support individuals/organizations/companies working towards problems related to climate change. Rainmatter Foundation has committed $100 million in funds towards the above directions. The Foundation has invested in Terra (an online climate school training climate entrepreneurs on climate science, policy, business, and social justice), and Blue Sky Analytics (which provides real-time and predictive environmental intelligence).

RISKS AND CHALLENGES

Zerodha faces the following Risks and Challenges:

1. Technical glitches on the platform because of heavy trading, lead to decreasing customer satisfaction.
2. Zerodha is an online platform, it does not have offline support branches so inefficient customer support, and lack of fast customer service is the greatest challenge that this company confronts.
3. Delayed Payments to traders and non-adherence to the 48hr payout timeline may lead to customer dissatisfaction and accumulated payables.
4. Lack of delivery of valuable advisory reports and analysis of one’s investments and trading activities be it either weekly or quarterly. Most of the big full-service brokers provide research reports.
5. Competition Risk as competitors is increasingly offering lower transaction charges which may lead to loss of market share.
6. Regulatory changes may affect margins leading to possible losses of revenues. May also affect business ventures.

COMPETITORS

VISION AND MISSION

Upcoming goals for Zerodhais the aim to add 5-10 million new investors to the Indian stock market with the aid of the platform. “India is very dependent on foreign capital to drive the country. For any country to do well, you need residents to put their money in the market. The money shouldn’t just stay in fixed deposits and real estate. I want to encourage people to educate themselves and put the money in the ecosystem in some way or the other to drive growth,” Nithin concluded.

Zerodha is currently looking to reduce the transaction costs down in its discount brokerage services. The company will be launching low-cost funds in order to attain that target, as per the reports dated September 1, 2021.

Get the full research study here: Zerodha

Disclaimer

This report has been produced by students of Global Risk Management Institute for their own research, classroom discussions and general information purposes only. While care has been taken in gathering the data and preparing the report, the student’s or GRMI does not make any representations or warranties as to its accuracy or completeness and expressly excludes to the maximum extent permitted by law all those that might otherwise be implied. References to the information collected have been given where necessary.

GRMI or its students accepts no responsibility or liability for any loss or damage of any nature occasioned to any person as a result of acting or refraining from acting as a result of, or in reliance on, any statement, fact, figure or expression of opinion or belief contained in this report. This report does not constitute advice of any kind.

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