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Netflix's The Queen's Gambit may have popularized chess for modern audiences,
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but Nikhil Kamath liked it way before it was cool.
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Chess teaches you how to work under a structure, in a system,
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but yet try and be creative within that system.
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So much so, that he dropped out of high school at 14 to play chess full-time.
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I don't think I was the best student.
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That was the starting move that eventually led to his trading start-up for retail investors,
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which has been dubbed India's answer to trading platform Robinhood.
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We started, actually, maybe five years before they did.
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34-year-old Nikhil is the billionaire co-founder and chief investment officer
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of Zerodha, India's largest trading brokerage.
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Today, more than 15% of India's retail trades are done through its platform
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as ordinary investors flocked to stocks during the pandemic.
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But the school dropout only discovered his passion for investing after playing
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competitive chess at national and international levels for two years.
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No one was going to hire me without a college degree,
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so I mean I had to do something which didn't require one.
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Inspired by his elder brother, Nithin, he took to trading when he was 17,
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teaching himself on the go.
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It went well and soon, the pair was investing for family and friends.
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Along the way, they felt that the investment process was too complex.
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The problem back in the day, I'm talking about
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11 or 12 years ago, is cost was very high. Brokerage fees were incredibly high in India.
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And for a full-time trader there were many barricades or barriers
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one had to cross before he could actually be profitable in any consistent kind of manner.
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So the Bangalore-born brothers set to work, using their savings to build a
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simple and affordable brokerage platform for everyday investors.
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In 2010, Zerodha, a combination of zero and rodha, the Sanskrit word for barriers, was born.
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Unlike most startups, the company hasn't taken on any external investment.
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We've been different in a way from other companies as in we've never taken on
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investors or debt or never really raised any capital.
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Our ethos from the very beginning was build a better product,
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and word of mouth will bring clientele to you.
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In the decade since, Zerodha has grown through word of mouth as appetite for investments beyond
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gold and property grew in India. But in 2020, all that changed under the pandemic.
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At the height of lockdowns, the company doubled its registered users to over 4 million.
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The pandemic has been good to us, which is a strange thing to say.
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People had a lot more time, people were at home and, unfortunately,
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in many cases, they were in a position where an alternate income could have been very useful.
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Shailesh Lakhani, managing director at venture capital firm Sequoia India, told me more.
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In India in the last year what we saw was that brokerage account openings doubled over 2019. I
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think we had 10 million brokerage accounts opened in 2020 versus just under 5 million in 2019.
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And I think It's driven by a few different factors. One, that it's just become
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a lot easier with the financial services infrastructure to open a brokerage account.
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Second, mutual funds in the past several years have tended to underperform
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the equity indices or their benchmarks.
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And as we've had rising markets aside from the coronavirus, that fear in March, April, May,
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the markets have been pretty easy to make money in for a lot of folks.
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In 2020, the average age of a Zerodha investor fell from 32 to 30. That has drawn parallels
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with U.S. trading platform Robinhood, which saw a similar surge in millennials during the pandemic.
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Nikhil says that could pave the way for a future expansion into the U.S.
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Regulation in India around broking is a lot higher than it is in America.
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But that being said, the end-user experience, the technology of it all,
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is something that we could both compete on.
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So we would look at approaching their market at some point and seeing
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if there are ways in which our products can integrate with what is available in America.
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Even as the financial technology space gets increasingly competitive,
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Zerodha has no plans to raise more capital, unlike its competitor Robinhood.
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That hasn't prevented talk of the entrepreneur's growing fortune, however.
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In October 2020, the Kamath brothers joined Forbes India Rich List with a combined
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wealth of around $1.6 billion, as 34-year-old Nikhil was named India's youngest billionaire.
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For a while now, I don't think financial motives have been the
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focus. I don't think it has been the most important thing and that's set to continue.
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But I think more access to capital gives you
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the room and the courage to go out there and try new stuff.
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And that's exactly what he did. After struggling to find a cost-effective way to manage their
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growing wealth, Nikhil and Nithin once again set out to disrupt the investment industry,
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this time for high-net-worth individuals, or people with around $1 million in financial assets.
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In 2019, the brothers launched True Beacon as an asset management firm for wealthy clients.
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What I realized are there are many inefficiencies in the model.
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The fund manager or the fund house and the client are never aligned in a way.
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Unlike traditional funds, which charge clients a fee for managing assets,
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set up costs and annual fees, True Beacon only charges clients a performance fee on gains made.
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Nikhil says that 10% cut drives the firm to achieve better returns.
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If the client doesn't do well for any reason over a five-year period,
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we have no revenue as a company.
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So we're really putting our necks out there and saying we will create
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something which is different, which is totally client-aligned and very,
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very transparent. I guess time will tell as to how that goes.
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True Beacon's India-focused flagship fund aims to outperform the Nifty 50,
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the country's benchmark stock index, by 6-8%.
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In its first year, True Beacon claimed that its fund beat the Nifty benchmark by over 26%.
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Meanwhile, client volumes grew as much as 20% month-on-month as wealthy international
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investors sought refuge in Indian stocks amid rising US-China tensions.
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Nikhil is now hoping the company could hit a billion-dollar valuation within the coming years.
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It will probably be a few years before word gets around and people actually compare like to like.
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But when it does and it scales, I think it will be a company that will
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definitely bring in some revenue. We hope it will.
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Like Zerodha, that could position True Beacon as one of the many
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billion-dollar unicorns in India's rapidly growing start-up ecosystem.
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India is currently home to 21 unicorns with a combined valuation of $73.2 billion.
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By 2025, that number is estimated to hit 100.
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We see a start-up ecosystem really fundamentally underpinned by a couple of aspects.
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One being the number of engineers, the amount of people writing software.
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In India, depends on how you count, but it's among
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the highest number of engineers that are writing software anywhere in the world.
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Second being an interesting consumer market. India's probably the largest market
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that will grow the fastest over the course of the rest of our lifetimes.
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Even though his days as a full-time chess player are over,
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Nikhil has applied the lessons he learned from the game to grow his companies.
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I think right now I'm kind of like totally occupied. I don't see
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myself having the bandwidth to do something new in the very near future.
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So over the next six months or 12 months, I think Zerodha and True Beacon are going to be the focus.