Nithin Kamath explains why Zerodha will continue to offer direct mutual funds for free

Nearly 15 years after introducing the discount brokerage model in India, Zerodha co-founder and Chief Executive Officer Nithin Kamath has reaffirmed the philosophy that shaped the company's pricing strategy from day one.

In a post on social media platform X, Kamath said Zerodha's decision to charge a flat brokerage fee instead of a percentage of transaction value was rooted in a simple principle—that the effort required to execute a trade does not change with the size of the order.

He said the same thinking later influenced Zerodha's mutual fund business, prompting the company to launch its platform, Coin, only after it was able to offer direct mutual funds exclusively. Today, Coin has grown into India's largest direct mutual fund platform, managing nearly ₹1.6 lakh crore in direct mutual fund assets under management (AUM), according to Kamath.

The entrepreneur also highlighted that while several direct mutual fund platforms launched around the same time as Coin, many have either shut down or shifted to other business models. Despite the evolving competitive landscape, he said Zerodha remains committed to offering direct mutual funds free of cost.

"When we started the discount brokerage (flat fee per trade) model in India in 2010, we decided to charge the same fee regardless of trade size. The logic was simple: if the effort to execute a trade is the same, why should customers pay differently? We applied the same logic to mutual funds. We didn't launch MFs until we could sell exclusively direct plans," Kamath wrote on X.

Why is Zerodha doubling down on direct mutual funds?

Kamath argued that charging investors a percentage-based fee for executing transactions contradicts the very idea of a discount brokerage because larger orders do not require proportionately greater effort to process. According to him, this principle has guided Zerodha's pricing decisions across its products since inception.

"You can't call yourself a discount or a low-cost broker if you charge a percentage fee on transactions, because there's no incremental effort in executing a larger order. This logic has informed all our product and pricing decisions from day one," he said.

The Zerodha chief also used the opportunity to educate investors about the difference between direct and regular mutual fund plans. Direct plans are purchased directly from the asset management company or through platforms that do not receive distributor commissions. Since there are no intermediary commissions built into the expense ratio, direct plans typically have lower annual costs than regular plans, allowing investors to retain a larger share of their long-term returns.

Regular plans, on the other hand, include distributor commissions within their expense ratios. While they may be suitable for investors seeking financial advice or hand-holding from distributors, those managing their own investments often prefer direct plans because of their lower costs.

Kamath claimed that Zerodha's approach has resulted in significant savings for investors over the years.

"Coin today is the largest direct mutual funds platform in India, with nearly ₹1.6 lakh crores in direct MF AUM, and all our customers have saved thousands of crores in commissions. Direct mutual funds are a no-brainer if you're a DIY investor."

He added that the direct mutual fund industry has evolved considerably since Coin's launch. According to Kamath, many competing platforms that initially focused on direct plans have either exited the business or changed strategy, while some of the remaining players are reconsidering whether to continue offering direct plans.

Despite these developments, Kamath said Zerodha has no plans to change its stance.

"We will continue to offer direct mutual funds for free," he said, adding that many investors are still unaware of whether they hold direct or regular mutual fund plans. He advised investors to verify the type of plans they own and said Zerodha can assist those looking to switch from regular plans to direct plans.

Kamath's comments come at a time when cost efficiency and transparency have become increasingly important for retail investors. As India's mutual fund industry continues to expand and more first-time investors enter the market through digital platforms, awareness around direct and regular plans is also growing. His remarks reiterate Zerodha's long-standing belief that reducing investment costs can have a meaningful impact on long-term wealth creation, particularly for self-directed investors who do not require advisory services.

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