He got together with Vasanth Kamath and Rohan Gupta, friends of his when they were at IIT Kharagpur, to start a venture that would help individual investors to invest in an idea or theme they believe in. They called it Smallcase.
Launched in July last year, Smallcase already has 20,000 customers opting for more than 50 different stock baskets. You can buy portfolios of stocks that reflect market themes like GST, rural demand, India’s growing middle class, or the monsoon, with just two clicks.
Smallcase is among several startups trying to disrupt the more than a century old broking and capital market business of Mumbai’s Dalal Street. Most of the new ventures are exclusively online, and are targeting professionals with bank balances much lower than the traditional daily traders and big investors.
In India, less than 1% of the population invests in stocks either directly or through mutual funds. In the US, that figure is 50%. While India has 2.7 crore demat accounts, only 10 lakh are used for active trading.
LOWER COSTS
The newer ventures are trying to change this by drastically simplifying choices, and making it easier and less expensive to make transactions. In many ways, the most successful is Zerodha, one of the earliest of these ventures, founded in 2010. In just a few years, it became one of India’s biggest brokerages, accounting now for 4-5% of the stock exchanges’ retail volumes. It has 2 lakh clients, almost double the number 12 months ago, and closed the last fiscal with Rs 120 crore in revenue and Rs 65 crore in profit.
Zerodha charges a flat Rs 20 for futures & options and intra-day trade, and nothing for other trades that are longer term, as against the industry norm of charging a percentage of the trade. The traditional brokers with their fixed running costs are unable to match that. While many attribute Zerodha’s success to this low fee, founder Nithin Kamath attributes it far more to the transparency that they brought, most notably through an extremely proactive financial blog that puts out posts giving investment advice and explaining financial terms. The trading platform’s friendly user interface also helps, he says.
Scripbox is a platform that drastically simplifies the investing process. There are over 8,000 mutual funds in India, and choosing the right one can be complicated even for experienced investors. Scripbox’s computer algorithms run through a variety of metrics, including historical performance, and shortlists just 10 funds – four equity, four debt, and two tax saving – which they identify as the most promising. Investors choose from only these ten, and the ten remain unchanged for a year.
Scripbox has over 2.5 lakh registered users. Founder Sanjiv Singhal says it has helped bring in many newbies, and the computer-identified funds invariably have delivered much better returns than the average fund.
Most startups are targeting professionals with an annual income between Rs 8 lakh and Rs 24 lakh, says Parag Dhol, managing director of Inventus Capital Partners, an investor in Chennai-based FundsIndia, an online investment platform that has more than one lakh customers and growing rapidly. “These are first time buyers, who are comfortable with online banking. These are people looking at long term investments,” says Dhol, adding that FundsIndia’s customer retention rate is high at 70%.
The technology systems also help market newbies understand things like their risk appetites and investment goals, and choose products accordingly. Mumbai-based 5nance has 60 odd buckets, and based on customer feedback, the platform automatically moves customers to one or the other basket periodically. Dinesh Rohira, co-founder and CEO, says the exit horizons of mid-income professionals entering newly are more than seven years and most wealth managers would not find working with such professional over such long periods remunerative. “We can personalize wealth management for millions of customers,” he says.
OLDER FIRMS FIGHT BACK
But there are challenges too for the new tech-based ventures. Doing KYC (know your customer) is not easy for online-only companies. The regular KYC process requires submission of KYC form with investor signature and additional documents for ID and address proof.
“This is fortunately being resolved by the regulator. Paperless investing should soon become a reality,” says Scripbox’s Singhal. Aadhaar-based eKYC is already a possibility.
Traditional offline firms are also now becoming aggressive in their digital play. Angel Broking, which has 10 lakh clients, recently launched an artificial intelligence platform that can make predictive investments for retail investors. CEO Vinay Agrawal says the deep industry insights of larger players are unmatched by startups.
But it might be tough to beat innovations by startups. Smallcase co-founder Vasanth Kamath says their algorithms have analysed the investing patterns and philosophies of legends like Warren Buffet. “So, if you want to invest like Buffet, you have a bucket of companies for that,” he says.
(By Anand J, TNN)
Source: The Economic Times