Zerodha’s AMC Branch in Dialogue to Secure Funding Up to $100 Million from Investors

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Three points you will get to know in this article:

  •  It may still take months to finalize the deliberations, according to reports
  • Zerodha Group will seek external funding for the first time if the transaction goes through
  • In August 2023, Zerodha Fund House received SEBI approval to begin operations of its first mutual fund scheme.

Introduction to Zerodha

Zerodha is a leading Indian stockbroking and financial services platform. Founded in 2010, the company offers a range of products and services, including equity, debt, and currency trading. Zerodha’s platform is known for its low transaction costs, user-friendly interface, and innovative features. Additionally, the company has a strong focus on transparency and customer service. It has won numerous awards for its service and is widely recognized as one of the top stockbroking platforms in India.

Zerodha Fund House Seeks External Funding

Zerodha’s asset management arm, known as Zerodha Fund House, is currently engaging in discussions with multiple investors to secure funding of approximately $100 million (INR 828 Crores approx).

“They are in initial talks with various investors to raise funds of about $100 million for their asset management business.” The discussions are still in their early stages, and it might take several months for them to reach a conclusion.

If this deal materializes, it will mark the first instance of a Zerodha Group company seeking external investment. The founders, Nithin and Nikhil Kamath, pioneers of the renowned stock broking platform, have always operated without external funding, bootstrapping their venture since its inception in 2010.

Expansion into Mutual Funds and Collaborative Efforts

At a pivotal moment, Zerodha has significantly expanded its involvement in mutual funds just as competitors step up their game.

In October of the previous year, Zerodha’s asset management company (AMC) introduced its first trio of mutual fund plans. This move swiftly followed the green light from SEBI in August 2023, allowing the invest tech giant to kick off its AMC operations.

It’s worth mentioning that Zerodha Fund House emerges from a collaboration (JV) between Zerodha and another innovative investment tech platform called smallcase. Together, they’ve voiced their commitment to establishing an AMC focused solely on passive investment, crafting mutual fund options that are both transparent and affordable.

Explaining their motivation for venturing into mutual funds, Zerodha cofounder and CEO Nithin Kamath stated last August, “We had two main reasons. Firstly, we recognized the significant challenge and potential in the Indian markets due to limited participation. Despite considerable growth in recent years, we only have around 6-8 crore unique mutual fund and equity investors combined.”

Competition Dynamics and Strategic Moves

Amidst increasing competition from peers like Groww and the arrival of Reliance-backed Jio BlackRock in the Indian asset management scene, there’s a move to raise external capital. This is all part of the strategy to secure a strong position in the market, especially considering Jio BlackRock’s hefty $300 million fund dedicated to claiming a significant share.

Meanwhile, Groww has also made moves, recently introducing a mutual fund scheme and steadily attracting hundreds of thousands of new systematic investment plans (SIPs) each month as distributors of such offerings.

In another development, CRED, under the leadership of Kunal Shah, expanded its presence in the wealth management sector by acquiring the investech platform Kuvera. This move positions them in direct competition with established players like Zerodha and Groww, indicating a dynamic shift in the market landscape.

Zerodha’s asset management arm, Zerodha Fund House, is in initial discussions with multiple investors to secure about $100 million in funding, marking their first external investment. Their focus on mutual funds, following SEBI’s approval, aligns with their commitment to passive investments. Amidst increased competition in the Indian asset management sector, including new entrants like Reliance-backed Jio BlackRock, Zerodha’s move to raise external capital reflects a strategic effort to solidify their market position. Additionally, the acquisition of Kuvera by CRED indicates a dynamic shift in the wealth management landscape, highlighting a growing competitive landscape.

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