Now that Coin is free (which is awesome) I was wondering what’s the business model behind it. Do you guys sell client data to generate revenues? Also, @nithin, what’s your view on some of the allegations made in this article?
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Firstly about the article,
I can’t speak about others but we haven’t received any money from any of the AMCs for selling direct mutual funds on Coin - no marketing fees, no client acquisition fees or consideration in any form. Definitely no foreign trips, events, cocktail parties or such gifts in any form.
In terms of how we sell direct MF on Coin - we say that commission on a regular fund can be up to 1.5% extra (a reduction in expense ratios was announced today by SEBI) for every year as long as you are invested. People don’t understand the significance of this saving over a longer period of time. Hence, we have added a calculator on every fund page, where the expense ratios of regular and direct are shown. Based on a user’s expected returns expectation, it will show the savings in commissions that can be achieved by investing in direct mutual funds.
I agree with Manoj that investing in mutual funds shouldn’t in anyway be sold as if it is a guaranteed earning. But this is applicable to not only platforms selling direct funds, but also to regular funds, wealth managers, distributors, IFA’s etc. No one should be allowed to sell mutual funds guaranteeing a return - be it in the short or long term.
As a business, we do not offer advisory services but rather focus on educating users and offering the best execution platforms. If clients come asking for advice, we say that if you don’t have the bandwidth to learn - please meet a professional adviser. Btw another USP of Coin is that - since we sell direct in demat form with us as the intermediary, there is no additional support burden on the AMC. This should further help the AMC keep the expenses low.
I guess everyone agrees that for a client who executes everything himself, direct is the best way to go.
So, what is the best case scenario for a client who doesn’t know what to do?
Direct mutual funds + An adviser who charges for the service.
This is very similar to how a doctor works. Imagine if a doctor didn’t charge you for consultation, didn’t talk about how he makes money, and then earned from all the medicines sold (traditional distribution). This model can very easily be misused by someone who is greedy.
But the problem in India with direct MF + advisory fees model is that people hate paying such fees. With regular MF, since they don’t see the money being paid out as commissions from their investments, they don’t care. But ask money separately and you’d realize how tough it is.
I remember a client who had over Rs 20lks in MF holdings bought through his bank manager 10 years back. No interaction with the manager who sold or the bank for 10 years. So I suggested, why don’t you convert this to direct, you will save at least around Rs 20k every year which is otherwise going to your bank as commissions for no reason. He did convert and moved his AUM to Coin. After a few weeks, he goes - isn’t Rs 50 per month for using Coin too much money? 
(this was before we made Coin absolutely free)
So yeah, this is a tough one to call. Ideally, it should be Direct + Advisory fees but can’t see how a business can run if no one is ready to pay the fees. With guys like Paytm, ET money etc with their big marketing budgets jumping in - the awareness will spread that there is something called direct mutual funds where the commissions being paid out can be saved (not earned). I guess people/businesses who are currently distributing regular have to be ready to adapt and find a neutral ground between direct, advisory, and regular - where client benefits the most. Disintermediation in financial services thanks to technology is happening at speeds like never before. I sometimes wonder, what if tomorrow some exchange decides to go direct to customer - why should they use brokerage firms like ours for this. There is going to be no status quo - everyone is going to be disrupted.
About our business model for Coin
I have explained in the blogpost on why we went completely free with Coin
https://zerodha.com/z-connect/featured/coin-is-now-completely-free
Today we as a business are at a point where we enjoy economies of scale. Over Rs 2200 crores of investments in 1 year supported by just 4 people.
We don’t sell client data to generate revenues. The only thing we do is to notify our clients via email/SMS/Kite anytime we launch a new product or if there are any important business updates. Of course we hope that with a much larger client base which could be acquired by allowing equity investing and direct mutual funds for free, the odds of our new products/upsell being able to generate revenue also goes up.
For now, thanks to F&O and intraday traders who generate us revenue, thanks to our tech team who have built brilliant products that scale up easily without having to spend much, and thanks to our transparent business model which is very easy to support - we are able to keep investing in equity and direct mutual funds completely free.
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That’s huge!!! You should buy majority stake in NSE once their IPO launches and think about it. After all you are our’CATALYST FOR CHANGE’ 
Nithin, you are helping a mass by offering such a model as ‘bait & hook’, where other products as ‘Sensibull, Algo trading, etc.’ is helping you to generate revenue!!
Truly being an inspiration, sparing time to answer our queries being at this position!
You and our Zerodha will Shine high!!
Best
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I would like to comment here . i am getting calls regularly from some mobile number’s claiming as Zerodha representative , for authenticity , callers say exactly my name and Zerodha user ID, what will you say ?
We have clarified this numerous times, we don’t sell client data. This has become an industrywide nuisance. We have raised the issue with the regulators as well. You can read the letter of our representation as well as the steps to report these calls here https://fightstocktips.zerodha.com/.
As for them using our name, it’s pretty easy isn’t it, given that we are one of the most well-known brokers in India.
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Well . i can understand , Telecaller may use Zerodha name , but worrying thing is that , How , He/She " refer exactly" my Zerodha User ID/ Client ID and calling my Name ?
We all know Zerodha coin is free, but I am confused, how can earn Zerodha from coin?
It is explained in article mentioned in Nithin answer
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