Zerodha AMC Gets Final Approval From SEBI, Says Nithin Kamath

The asset management company joint venture between discount broker Zerodha Broking Ltd. and wealth management company Smallcase has received final regulatory approval from the Securities and Exchange Board of India.

"Our motivation to start a mutual fund was twofold. The first was that the biggest challenge and opportunity for Indian markets is shallow participation. Even after all the growth over the last three years, we only have maybe 6–8 crore unique mutual fund and equity investors put together," said Nithin Kamath, founder and chief executive officer at Zerodha, in a post on social media platform X.

The second motivation, Kamath said in the same post, is to bring in the next 1 crore investors.

This is the second approval for a mutual fund house granted by SEBI this week. On Thursday, industry veteran Samir Arora announced that Helios Mutual Fund had received the final nod.

Zerodha catapulted into pole position as the largest stockbroker in India even before the Covid-19 pandemic, which brought millions of new retail participants into the capital markets in India. By recent estimates, Zerodha’s market share in India’s stockbroking business is close to a fifth based on active subscribers.

"We aim to be index-only and create simple funds and ETFs that all investors can understand and invest in for all their goals," said Kamath.

That’s a novel approach that looks to benefit from the rapid increase in the adoption of passive investing by Indian investors. It involves the launch of index funds and exchange-traded funds, which allow investors to invest in companies that form a part of existing indices, like the benchmark Nifty 50. It is espoused as a simple, low-cost model for investors.

According to a Motilal Oswal report, as of March this year, assets under management in passive funds in India stood at Rs 7 lakh crore, up 8.5 times in five years and growing at a compounded annual rate of 54%. Still, the adoption of the passive strategy lags that of markets like the U.S., where the category accounts for over half of the assets under management.

The next leg of growth in the mutual fund industry could well be driven by passive investing. But competition will be fierce. Only recently, Jio Financial Services announced a partnership with BlackRock, one of the world’s largest money managers, which is known especially for its passive strategies.

And incumbent market leaders will likely pivot to ensure they stay on top. Currently, the mutual fund industry in India, which had assets under management of Rs 46.4 lakh crore at the end of July, is dominated by a handful of players. Eight mutual fund houses, out of over 40, controlled close to 75% of the assets under management at the end of March, according to data compiled by the market regulator SEBI.