How does Zerodha makes money

Zerodha is the most used discount broker in India. They acquire the entire industry in just a few years since its establishment. But, how does Zerodha make money? To answer this, I must say they offer zero brokerage long-term/delivery trades and a fixed maximum brokerage of ₹20 for intraday trades. Compare that with the full-service brokers. That isn't very important.

But as it displays, Zerodha makes pennies. But intraday trading gives high profited to the brokers. Below are the charges they charge from their 4+ million clients.

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Zerodha charges a flat fee on intraday and F&O trades

Zerodha charges a commission on all intraday trades. However, compared to full-service brokers that charge a percentage of the trade value, Zerodha limits its brokerage. They charge a full brokerage of ₹20 per transaction irrespective of how large the transaction is.

Zerodha relies on a high volume of transactions

Their business model relies on the number of transactions on the platform. Instead of charging more per transaction, they focus on building a great product, so more clients are attracted to trade on it.

So they earn ₹20 on the millions of transactions that occur daily. Multiply that, and you'll see the power of Zerodha's business model.

Money through startup incubation

Rainmatter is Zerodha's incubator that has launched successful server startups in the fintech industry.

Here is a list of all the startups that Rainmatter incubated or invested in and that have been successful!

Small case - India's first thematic investment platform
Streak - The first end-to-end platform in the world to create, backtest, and deploy trading algos without coding
Tradelab - Builds cutting edge technology to drive for capital market businesses
CRED - A members-only app that offers you exclusive rewards for paying your credit card bills.
LearnApp - Courses in Investing, Trading, Technology & Management taught by industry experts first-hand!

You can view their complete list of investments on their homepage. As we all know, that most startups fail. However, seems like all the startups that Zerodha has either invested in or incubated and mentored have flourished to attain great success to be known! And there are many more.

True Beacon and Mutual Fund AMC

Zerodha launched its first alternative investment fund in 2019 named True Beacon. The fund was built to tackle the volatility of the markets for high net worth individuals (HNIs) with a minimum investment of $2 million. And in its first year, True Beacon generated a 13%+ return

Because of the success with True Beacon, Zerodha has also applied for a mutual fund AMC license and aims to launch its diversified fund portfolio in the coming time.

The fees generated by True Beacon also become a significant part of Zerodha's revenue sources.

Zerodha's No Marketing Strategy for Higher Profitability

One of the most powerful strategies that Nithin Kamath applied was the "No-marketing" strategy.

He said that he wanted to create a product so good that people do the marketing.

And true to this plan, Zerodha launched the lowest brokerage on a large scale. It shook full-service brokers by providing even better service at nominal rates.

Traders started raving about this brokerage slash. And Zerodha's onboard is extremely streamlined where (during the initial phases) a representative would collect the documents and complete the account opening process for you.

Now, since the entire process has moved online, there is simply no friction for most users.

In my personal experience using Zerodha for over 7 years now, I'm yet to make a single complaint. And their recently launched Kite trading platform is mind-bogglingly good!

It is certainly a product worth talking about, and you'll see that most of the new traders use no other broker than Zerodha.

Zerodha's Affiliate Model for Promotion

To encourage users who were already talking about Zerodha to continue promoting their services, they launched a recurring affiliate model.

Any user who signs up to Zerodha using an affiliate link is automatically added under the affiliate's account.

10% of all the brokerage amount generated from referred users goes to the affiliate. And this continues for as long as the referred user trades in the account.

And so, Zerodha gained the free publicity that it required!

Zerodha's low-cost franchise operations

Another way Zerodha saved money was by franchising its outlets. Instead of owning the outlets, Zerodha allowed members to start their own Zerodha franchise and help new users create and set up accounts.

In return, the franchise owners were allowed to charge a commission over and above the account opening charges + make commissions on brokerage like an affiliate.

So as of this writing, Zerodha's account opening charges are ₹300. A franchise owner can decide to charge ₹1,000 to complete the account opening process for their customer.

The ₹700 is the franchise owner's commission. On top of that, they get to become the affiliates of those new accounts.

And finally, this gives Zerodha word-of-mouth publicity as franchise owners would want to grow their businesses too.

Minimal overheads for lower expenses

Zerodha needs very few employees. Most of its employees help support their customer queries on calls and their support ticketing platform.

Apart from that, they have a few subject matter experts who write on their blogs on trading and investing-related topics.

HOW DOES ZERODHA SUB-BROKER REVENUE SHARING WORK?

Zerodha franchise revenue sharing distributes the commission rate as per business models. They further categorize the commission as per certain arrangements they have with partners.

The commission rate for the remisier model varies from 10%-30%. And, the commission rate for the referral program is fixed at 10%.

ticketing platform.

WHAT IS THE ZERODHA'S REQUIREMENT FOR A BUSINESS PARTNER SECURITY DEPOSIT

Zerodha Franchise requires their partners to abide by certain rules. It includes making a primitive investment. And the investment is made for infrastructure and business fundamentals. It even involves paying a certain amount for the security deposit.

And, the security deposit paid establishes a lot of things. We are referring to the commission rates and the set arrangements.

Thus, the remisiers are required to pay Rs.11,000 as the security deposit. And, the referral program needs a security deposit of Rs.1,500.