We make no money from selling direct Mutual Funds. We maybe end up losing some money because we don’t charge DP charges to the customers. Similarly on equity delivery trades as well, we don’t charge any brokerage. So today, our active traders (intraday and F&O traders) are the only ones through whom we earn. We were charging Rs 50/month for the Coin platform, but we had to go zero when VC’s started funding startups in this space to offer direct mutual funds for free.
Btw, I had written the below post answering all different kind of conspiracy theories on Zerodha.
From that post:
This is parrotted in many different forms by people who don’t understand our business model. That conspiracy is that since we offer free services, we must be mining our client data and selling it to 3rd parties, especially stock tipsters. While most of our clients only invest in stocks and direct mutual funds from which we don’t earn any revenue, we do charge Rs 20 per trade (or 0.01% whichever lower) for F&O and intraday equity trades. 95% of all trading turnover on the exchanges is from intraday equity and F&O trades. We have the largest retail trading community of intraday equity and F&O traders in India trading with us.
Offering free equity investments helps us grow the capital market ecosystem in India and grow our client base. But like I’ve always said, the lion’s share of our revenue comes from the active traders, who execute 15+ lakh revenue-generating trades daily. Do the math and one can know why we are a Rs 500+ crore topline business.
As a technology company, we have kept our operating costs extremely low by developing technology for not just our users, but internally for our operations. We have the highest gross margins and are probably the most profitable retail-only stock broker in India. Both within the industry and internationally, we’re considered a fintech company more than brokerage business.
The largest VC and PE firms in the world have been keen on investing in us at billion-dollar valuations. A leading global bank, in a recent publication, ascribed a multi-billion dollar valuation to us. But, we’ve never raised external money because we’ve always been profitable and have been able to grow on the merits of our products. We’ve never advertised, which cannot be said of our competition who have large budgets for online, print, and TV advertising. The quality of our products and the goodwill we’ve earned from our clients is why we’re the largest broker in India today.