The reason why I ask this question is because, most long term investors in my family/friends (primarily 55+ yr olds) believe that new age companies should not be trusted with your wealth. Like most “start ups” their failure is imminent and the businesses not thought out for the long term. I know none of this is true for Zerodha (atleast on the face of it and it being a decade old firm). But besides this, please feel free to share your knowledge and experience on this subject.
Let’s say my portfolio is growing rapidly and falls under HNI category. Would zerodha still be a good choice? Or I should look at more seasoned brokers like Kotak/ICICI etc.
There is a perception(especially among old-timers) that bank brokers are safer than discount brokers; I don’t think that holds true anymore when you talk of Zerodha. If you are a LT investor, a full service (whatever that means lol) bank broker might be alright. But if you are into F&O and/or trade frequently, discount brokers are a MUST.
Let’s consider 2 big brands. Hyundai and Toyota. So before buying a car, do you decide by brand or determine other factors(Cost, Mileage, Value for Money, Comfort, etc.) as well. Certainly, you will consider other factors.
Okay. If the above question’s answer is yes. The real question while comparing the broker is how do you know that these bank-brokers are safe? What makes you conclude that it’s safe? Is it just because they are a bank? Because banks are big? Or on the assumption that banks are always safe?
Just like banks are monitored by RBI, SEBI monitors brokers. RBI and SEBI work on a mission to safeguard investor’s interests. Even though you use banks for investments, it still falls under SEBI’s purview. This means anything to do with investments and trading will be regulated by SEBI. This means be it Zerodha or HDFC or Kotak or ICICI. All of them are regulated by SEBI.
If SEBI regulates all, then the next question is how safe these brokers are in their operations. Just because it’s a bank, it doesn’t mean they are safe. Since, regulatory-wise, every broker falls in the same basket, we need to check their operations to decide if they are safe or not. What makes it risky or not safe. Few practices which brokers follow can help you determine this.
Is the company debt-free and profitable?
What verticals of business do they operate in?
Have they violated any regulations and in the news for the wrong reasons?
Are shares and mutual funds held in clients demat account or pool account?
Does the company follow the transparent process?
Do they offer Margin Funding?
How big is the brand? (Client base, Online, and offline presence, Daily trading activity)
Are their products reliable?
Are they conservative in their business decisions they take?
As a long-term investor, I guess you will not be bothered about cost as such but focused on the safety of funds. Hence if your answers to all the above questions are satisfactory with a particular broker, then you have the answer!
Here is the blog written by Zerodha on how safe they are.
Btw as an investor, We do apply the same logic before we invest for a long term.