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  • Netflix's The Queen's Gambit may have  popularized chess for modern audiences,  

  • but Nikhil Kamath liked it way before it was cool.

  • Chess teaches you how to work  under a structure, in a system,  

  • but yet try and be creative within that system.

  • So much so, that he dropped out of high  school at 14 to play chess full-time

  • I don't think I was the best student.

  • That was the starting move that eventually led  to his trading start-up for retail investors,  

  • which has been dubbed India's answer  to trading platform Robinhood

  • We started, actually, maybe  five years before they did.

  • 34-year-old Nikhil is the billionaire  co-founder and chief investment officer  

  • of Zerodha, India's largest trading brokerage.

  • Today, more than 15% of India's retail  trades are done through its platform  

  • as ordinary investors flocked  to stocks during the pandemic.

  • But the school dropout only discovered  his passion for investing after playing  

  • competitive chess at national and  international levels for two years.

  • No one was going to hire me  without a college degree,  

  • so I mean I had to do something  which didn't require one.

  • Inspired by his elder brother, Nithinhe took to trading when he was 17,  

  • teaching himself on the go.

  • It went well and soon, the pair was  investing for family and friends.

  • Along the way, they felt that the  investment process was too complex.

  • The problem back in the day, I'm talking about  

  • 11 or 12 years ago, is cost was very highBrokerage fees were incredibly high in India.

  • And for a full-time trader there  were many barricades or barriers  

  • one had to cross before he could actually be  profitable in any consistent kind of manner.

  • So the Bangalore-born brothers set to  work, using their savings to build a  

  • simple and affordable brokerage  platform for everyday investors.

  • In 2010, Zerodha, a combination of zero and  rodha, the Sanskrit word for barriers, was born.  

  • Unlike most startups, the company  hasn't taken on any external investment.

  • We've been different in a way from other  companies as in we've never taken on  

  • investors or debt or never  really raised any capital.

  • Our ethos from the very beginning  was build a better product,  

  • and word of mouth will bring clientele to you.

  • In the decade since, Zerodha has grown through  word of mouth as appetite for investments beyond  

  • gold and property grew in India. But in  2020, all that changed under the pandemic.

  • At the height of lockdowns, the company  doubled its registered users to over 4 million.

  • The pandemic has been good to uswhich is a strange thing to say.

  • People had a lot more time, people  were at home and, unfortunately,  

  • in many cases, they were in a position where an  alternate income could have been very useful.

  • Shailesh Lakhani, managing director at venture  capital firm Sequoia India, told me more.

  • In India in the last year what we saw was that  brokerage account openings doubled over 2019. I  

  • think we had 10 million brokerage accounts opened  in 2020 versus just under 5 million in 2019.

  • And I think It's driven by a few different  factors. One, that it's just become  

  • a lot easier with the financial services  infrastructure to open a brokerage account

  • Second, mutual funds in the past several  years have tended to underperform  

  • the equity indices or their benchmarks.

  • And as we've had rising markets aside from the  coronavirus, that fear in March, April, May,  

  • the markets have been pretty easy  to make money in for a lot of folks.

  • In 2020, the average age of a Zerodha investor  fell from 32 to 30. That has drawn parallels  

  • with U.S. trading platform Robinhood, which sawsimilar surge in millennials during the pandemic.

  • Nikhil says that could pave the way  for a future expansion into the U.S. 

  • Regulation in India around broking is  a lot higher than it is in America.

  • But that being said, the end-user  experience, the technology of it all,  

  • is something that we could both compete on.

  • So we would look at approaching  their market at some point and seeing  

  • if there are ways in which our products can  integrate with what is available in America.

  • Even as the financial technology  space gets increasingly competitive,  

  • Zerodha has no plans to raise more  capital, unlike its competitor Robinhood.

  • That hasn't prevented talk of the  entrepreneur's growing fortune, however.

  • In October 2020, the Kamath brothers joined  Forbes India Rich List with a combined  

  • wealth of around $1.6 billion, as 34-year-old  Nikhil was named India's youngest billionaire.

  • For a while now, I don't think  financial motives have been the  

  • focus. I don't think it has been the most  important thing and that's set to continue.

  • But I think more access to capital gives you  

  • the room and the courage to go  out there and try new stuff.

  • And that's exactly what he did. After struggling  to find a cost-effective way to manage their  

  • growing wealth, Nikhil and Nithin once again  set out to disrupt the investment industry,  

  • this time for high-net-worth individuals, or  people with around $1 million in financial assets.

  • In 2019, the brothers launched True Beacon as  an asset management firm for wealthy clients.

  • What I realized are there are  many inefficiencies in the model.  

  • The fund manager or the fund house and  the client are never aligned in a way.

  • Unlike traditional funds, which charge  clients a fee for managing assets,  

  • set up costs and annual fees, True Beacon only  charges clients a performance fee on gains made.

  • Nikhil says that 10% cut drives  the firm to achieve better returns

  • If the client doesn't do well for  any reason over a five-year period,  

  • we have no revenue as a company.

  • So we're really putting our necks  out there and saying we will create  

  • something which is different, which  is totally client-aligned and very,  

  • very transparent. I guess time  will tell as to how that goes.

  • True Beacon's India-focused flagship  fund aims to outperform the Nifty 50,  

  • the country's benchmark stock index, by 6-8%.

  • In its first year, True Beacon claimed that  its fund beat the Nifty benchmark by over 26%.

  • Meanwhile, client volumes grew as much as  20% month-on-month as wealthy international  

  • investors sought refuge in Indian  stocks amid rising US-China tensions.

  • Nikhil is now hoping the company could hitbillion-dollar valuation within the coming years.

  • It will probably be a few years before word gets  around and people actually compare like to like.  

  • But when it does and it scales, I  think it will be a company that will  

  • definitely bring in some revenue. We hope it will.

  • Like Zerodha, that could position  True Beacon as one of the many  

  • billion-dollar unicorns in India's  rapidly growing start-up ecosystem.

  • India is currently home to 21 unicorns  with a combined valuation of $73.2 billion.  

  • By 2025, that number is estimated to hit 100.

  • We see a start-up ecosystem really fundamentally  underpinned by a couple of aspects.  

  • One being the number of engineersthe amount of people writing software.

  • In India, depends on how you count, but it's among  

  • the highest number of engineers that are  writing software anywhere in the world.

  • Second being an interesting consumer  market. India's probably the largest market  

  • that will grow the fastest over the  course of the rest of our lifetimes.

  • Even though his days asfull-time chess player are over,  

  • Nikhil has applied the lessons he learned  from the game to grow his companies.

  • I think right now I'm kind of  like totally occupied. I don't see  

  • myself having the bandwidth to do  something new in the very near future.

  • So over the next six months or 12 months, I think  Zerodha and True Beacon are going to be the focus.

Netflix's The Queen's Gambit may have  popularized chess for modern audiences,  

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    Summer posted on 2021/01/12
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