Zerodha means zero barriers and not zero brokerage: Nithin Kamath

Clients of discount broker Zerodha have saved between Rs 2,000 crore and Rs 20,000 crore in brokerage fees over the last 10 years, founder and CEO Nithin Kamath claimed in a tweet on Friday. The company has waived off brokerage for equity deliverables.

“It’s been around 10 years since we waived off brokerage for equity delivery. Even though there is extreme pressure to change the stance, given option trading volumes are down significantly, we’ve stuck with this so far. Over the 10 years of being free, our clients have saved between Rs 2000 and 20,000 crores as equity delivery brokerage. And yeah, Zerodha = Zero + Barriers (Sanskrit), not Zero + brokerage,” the tweet said.

Kamath’s estimates are based on the assumption that the investors had paid 0.3%, 0.1% and 0.1% or Rs per trade.

In case of 0.3% brokerage with no cap, investors would have saved Rs 21,305 crore while in 0.1% brokerage, total savings would amount to Rs 7,101 crore. As for 0.1% or Rs 20, total savings would be Rs 2,195 crore.

Kamath also shared the link of a blogpost on z-connect to further his point.

Why and how much you pay as brokerage, matters
“One of the biggest mistakes both investors and traders make is ignoring the significance of costs to their overall returns. What they fail to realise is that costs are one of the biggest drags on realised returns. This ignorance of costs is because of percentage blindness — a brokerage of 0.5% seems small so most people tend to ignore it. The irony is most people don’t even make enough to recover their trading costs,” the blog post said.

“If your strategy involves just a few transactions a month, the costs quickly add up. Costs are the first hurdle to profitability. So, being conscious of costs can easily increase the odds of your profitability by a non-trivial margin,” it said further.

“I’m a big proponent of low-cost ETFs and index funds, so much so that the Zerodha AMC is especially focused on these products. But what boggles my mind is that a decent number of investors know the benefits of low-cost ETFs but still pay up to a 0.5 % brokerage. This is just percentage blindness in action. The whole point of ETFs is to save costs, but the brokerage on such transactions is already 1-5x the expense ratio of these ETFs,” it said.

In July, following Sebi’s ‘True to label’ circular, Kamath had tweeted that the brokerage may have to let go of the zero brokerage structure and/or increase brokerage for F&O trades.

The market regulator’s circular mandates all market infrastructure institutions (MIIs), like stock exchanges, to be ‘true to the label’ in how they levy charges. He had then said that this circular has a significant impact on brokers, traders, and investors.

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