Will Zerodha launching mutual fund business create conflict of interest?

Zerodha
1

Hi @nithin, congratulations on getting the AMC license. Eagerly waiting for the first NFO. Btw, I came across this thread on Reddit and wanted your input on it:

https://www.reddit.com/r/IndiaInvestments/comments/160b116/with_zerodha_issued_mutual_fund_license_will_it/?utm_source=share&utm_medium=web2x&context=3

Zerodha has data of lakhs of investors trading everyday may be doing their own research, maybe with the help of a investment professional.

Can Zerodha use this data and applying statistics or data science to come up with a portfolio which could perform at the level of best of these investors?

Does that not violate the ethical conduct?

Or is there something that I am missing.

Being a trader and investor through Zerodha, would like it if you clear the air. Thanks.

2

Thanks

Firstly, Zerodha, the brokerage firm, is just the sponsor of the AMC. The AMC itself is an entirely different regulated business. Separate office, employees, and we have only one employee of Zerodha sitting on the board of the AMC representing the sponsor.

We are attempting with the AMC to be India’s first Passive-only AMC, simplifying the mutual fund investing experience in the country. Vishal, who runs the AMC, will soon put up a detailed post on this topic.

Being passive-only means that all the funds launched will mirror an index available publicly. This isn’t like an active fund where a fund manager can decide to buy or sell stocks. This means that even if the AMC could access our customer data, it has nothing to act on.

As a sponsor, we also end up taking certain risks, which are reduced significantly in the case of Passive-only AMC

  • Risks like front running or insider trading accompanying a traditional AMC disappear.
  • In terms of advertising, explicit SEBI guidelines don’t allow an AMC to oversell in any way.
  • Every scheme needs SEBI approvals, and in the case of Passives, a fund manager can’t churn the portfolio frequently, which is another risk with Active AMC.

I had also shared this recently on social media.

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10 Likes
4

Hey, any updates about the NAV curve on console? i am eagerly waiting for that. @nithin

5

Will Zerodha MF provide distribution opportunities? Or it will be direct only? @nithin

6

We’re in the final stages are testing it, and it should be live in a couple of weeks.

7

Only passive funds, so yeah direct only.

8

How does it consider unpledged MFs. Suppose i have 10 lakh worth of Mutual Funds and i have pledged 5 lakh and remaining 5 lakh is not pledged. I am actively selling options using that pledged 5 lakh. So will my nav be calculated based on pledged margin or the whole invested 10 lakh? because i am not getting the margin from the whole 10 lakh