Zerodha’s Investment Arm Seeks Potential Funding

The online stock trading industry has become highly competitive in recent years, prompting major players to diversify their offerings. Following Groww’s entry into the mutual fund space, Zerodha, a leading brokerage firm, joined forces with Smallcase in 2023 to establish Zerodha Fund House, its asset management venture.

Eyeing External Capital

Sources close to the discussions reveal that Zerodha Fund House is exploring potential investments. “Initial talks are underway with various investors to secure up to $100 million for the asset management company,” stated one source on condition of anonymity. This move would mark a significant shift for the Zerodha Group, which has operated independently since its inception in 2010.

Unprecedented Move for Self-Funded Company

Zerodha, a company owned by the Kamath brothers, has always been self-funded. “Discussions are at a preliminary stage, and finalizing the deal could take several months,” informed another anonymous source not authorized to speak to the media.

Disclaimer: Potential, Not Guaranteed

It is crucial to note that these discussions may not result in a finalized investment.

Company Structure

Zerodha Fund House is operated by Zerodha Assets Management Private Limited. Public records indicate that Zerodha Broking holds a 70% stake in the company, with the remaining ownership belonging to Smallcase.

Product Launches and Market Entry

Zerodha Fund House entered the market with two index funds: the Zerodha Nifty LargeMidcap 250 Index Fund and the Zerodha ELSS Tax Saver Nifty Large MidCap 250 Index Fund, both invested in a portfolio of 250 Indian companies. The company further expanded its offerings with a Liquid fund (holding assets under management of Rs 311 crore) and a Gold ETF (with Rs 35 crore in assets under management).

Motivations Behind the Move

Sources suggest that Zerodha’s foray into asset management stems from its desire to create a comprehensive wealth management platform alongside its core stockbroking business.

Unanswered Inquiries

As of Monday, inquiries sent to Zerodha Fund House and Smallcase have not received a response. This article will be updated if they provide any comments.

Intensifying Competition in the Stockbroking Landscape

The online stockbroking sector is witnessing a fierce battle between four major players: Zerodha, Groww, AngelOne, and Upstox. Notably, Groww surpassed Zerodha in terms of user base in October 2023. Interestingly, all four companies reported profitability in the fiscal year ending March 2023.