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Nithin Kamath, the co-founder and Chief Executive Officer (CEO) of Zerodha, whose online discount brokerage firm has changed the dynamics of retail investment in the country, has a piece of advice for fintech startups.
Kamath's Zerodha was formed in 2010 and it became a pioneer in online discount broking in India. But the CEO observed that fintech companies that focus more on acquiring customers might lose the game soon. According to the Zerodha co-founder, " I think one thing a fintech startup focusing on investing shouldn't do is spend too much money acquiring customers. This forces startups to do random things to monetize and generate activity, which in turn deteriorates the product".
Kamath said if the product is bad it will need constant spending to acquire and retain users. " All the "user first" philosophies go out of the window when they're forced to monetize by pushing customers to transact in risky financial products," he added.
A few days ago Kamath shared a piece of advice for real estate investors on Twitter. When investing in real estate, Kamath asked investors to note if the property yield is greater than inflation.
If the yield is negative, the price has to go up by at least 10% every year to beat inflation, or the price has to double every seven years, Kamath tweeted.
Citing an example, the Zerodha CEO said, “If a flat costing ₹1crore can be rented at ₹20,000/month. For the price to go to ₹2 crore, ideally rent has to go to ₹40,000/month as well."
Like stocks, he said, real estate prices can also go up without good fundamentals. “Usually when that happens, stocks, real estate, crypto, etc., prices don't stay up there for too long," Kamath said.
The Zerodha co-founder added, “For real estate, rental yields are probably the best measure of fundamentals."
As per Zerodha's website, more than nine million clients place millions of orders every day through the investment platform, contributing over 15% of all Indian retail trading volumes. Some of the key factors through which Zerodha attracted noncustomers: were financial literacy programmes such as 'Varsity' and 'TradignQnA' forums. The brokerage company also created new features like Kite–a self-service broking platform, and also brought advanced trading tools like 'Pi' and 'Q' for charting and analysis. To solve the problem of awareness, it made a book called Rupee Tales that educated children about financial investments. In FY21, Zerodha reported a 2.6-fold rise in net profit at ₹1,122 crore and a 3X jump in revenue at ₹2,728.