Zerodha is probably the most trusted stockbroker in India for many reasons such as transparent business practices, clear vision of the founders, no major violations reported so far, continue investment in technology and zero debt company from day 1.
Zerodha is a leading stockbroker in India with more than 20 lakh active customers. Zerodha is registered with SEBI and member of BSE, NSE, MCX, and NCDEX. It also offers demat account related services through its CDSL membership.
Zerodha is in the retail stock broking business for 10 years (since 2010). They are audited by exchanges and SEBI regularly. As of March 2022, none of the regulatory agencies have reported any major violations of regulations by Zerodha.
Several rumors came about Zerodha on social media in the last few years but none of them stand true.
Is Zerodha Safe? Is Zerodha reliable? Can I keep my investments safe with Zerodha? What if Zerodha goes out of business?
The internet is filled with such questions on Zerodha. And every time a stock Broker is in the news for malpractices, these questions again start doing rounds on the internet forums. This article will do a check on Zerodha and identify how safe it is to do business with Zerodha.
The following are key facts you should know about Zerodha. The data is as of March 2020:
- India’s No. 1 stock broker
- Pioneer of online discount brokerage model in India
- Started operations on the 15th of August, 2010
- Largest stock broker in India in terms of customers, retail order volumes, etc.
- 22+ lakhs active client as of Oct 2020
- 1100+ employees
- Debt-free company.
- In-house build trading platform Kite
Why Zerodha is safer than other brokers?
Debt Free Company
Zerodha is a zero-debt company. In the corporate world, most financial irregularities have debt as the main catalyst. Zerodha has always been zero-debt right from the beginning. There is no borrowing of any kind.
No Margin Funding
Zerodha has never done margin funding, which is considered as a risky proposition for stockbrokers.
No client securities in the pooled account
Zerodha doesn’t keep client securities in a pooled account.
Simple Pricing Model
Zerodha has one single brokerage rates for all its customers. It doesn’t matter if you are an HNI or an investor. No one gets special treatment at Zerodha. Having a single rate for all customers reduces the operational risks significantly.
No Advisory Services
Zerodha never advises or sell any product promising returns. The only thing they do as a business is to offer execution platforms for someone who has the intent to buy/sell. No conflict of interest.
No Proprietary Trading
Many stockbrokers in the past have been alleged of doing proprietary trading from the funds kept in customers’ accounts. To allay concerns of customers of the company using their money for prop trading, as per a blog written by Zerodha founder Nithin Kamath, the company has stopped proprietary from September 2019.
No Credit Risk
There is no credit risk as less than 5% of Zerodha’s own capital is lent to customers in any form. Zerodha’s own funds in the business is greater than 25% of all client funds put together. Zerodha is profitable as a business and have enough reserves to sustain, even if there was an extended downturn in the economy.
Lowest Complaints to Active Clients Ratio
Zerodha’s ratio of complaints to active clients is among the least on the exchange.
As of April 2022, Zerodha has lakhs of active customers trading for over 10 years. Zerodha is the largest stock broker in India.
Zerodha is registered with SEBI and is a member of leading stock exchanges like NSE, BSE, and MCX. All stockbrokers offering trading services in India must register with SEBI and follow various guidelines. Similarly, stockbrokers must also get membership of the stock exchanges to be able to give their customers access to the exchange platforms. Both SEBI and stock exchanges keep an eye on their members and regularly audit their accounts to ensure diligence with the regulations. To date, no major violation has been reported by Zerodha.
Zerodha is also a DP (Depository Participant) with CDSL, one of the two Central Depositories in India that manages demat accounts. This membership allows it to open demat accounts of its customers with CDSL. Please note that demat accounts are not opened or managed by Zerodha but it only plays the role of intermediary between the customers and the CDSL.
As per SEBI regulations, all stock brokers need to acquire PoA (Power of Attorney). The PoA gives limited or full legal authority to the broker to operate your demat account i.e. debit/credit or pledge securities as per the agreed terms. PoA is not mandatory but is useful in automatic debit/credit of securities from a demat account. Customers can refuse to give PoA to the brokers. However, then they have to approve every time there is a need to debit or credit security from their demat account. To avoid this repeated approval process, PoA is used as a standard instruction to debit/credit or pledge securities whenever required.
Zerodha’s various membership details are as follows:
Zerodha Broking Ltd.: Member of NSE & BSE – SEBI Registration no.: INZ000031633
Depository services: SEBI Registration No.: IN-DP-431-2019; DP ID: 12081600 (Zerodha Securities Pvt. Ltd.)
Commodity Trading through Zerodha Commodities Pvt. Ltd. MCX: 46025 – SEBI Registration no.: INZ000038238
Zerodha has all the required credentials to be a safe, reliable and trustworthy stockbroker In India. The company is a legal stockbroker with all required certifications and memberships. Many leading companies have partnered with Zerodha which adds to its credibility. The company has won many awards in various platforms. Recently, it has also applied for mutual fund license which speaks for its expansion plans. In short, you’re as safe with Zerodha as with any leading stockbroker in India.
Frequently Asked Questions
Is Zerodha safe for the long term investment?
Zerodha is a debt-free
Zerodha offers broking services only. Thus, they cannot be affected by losses made in other businesses. Not a single major violation reported in the last ten years.Shares and Mutual Funds maintained in the Demat account held by CDSL
The company follows open and transparent business practices.
- Low client to complaint ratio.
- No Margin Funding facility.
- No Proprietary Trading.
At the time of opening an account with the broker, a customer is generally concerned about the safety and security of their funds and stocks lying with the broker. However, Zerodha is safe from all the aspects in reference to the above.
Zerodha is a SEBI registered stock broker and a member of NSE and BSE. The broker has all the genuine certifications to conduct the broking business. The transactions of the broker get scrutinized by SEBI and stock exchanges at a regular frequency and are penalized heavily in case of any wrongdoings. Moreover, the broker does not do proprietory trading. Thus, there is no risk of client money getting used for other purposes. Zerodha being a member of the CDSL depository, the Demat account safety is taken by CDSL and the broker acts as a mere facilitator for the transfer of securities.
How does Zerodha make money?
Zerodha offers all its services online, with nearly no physical presence. This reduces the operational cost and helps them scale-up the business easily. Zerodha also doesn’t offer many add-on services like research, tips, relationship managers, etc. Zerodha doesn’t spend any money on advertisement.
Zerodha is simply an online trading company leveraging technology to offer trading services to a huge number of customers.
Is Zerodha best?
Zerodha is best in offering advanced trading platforms and trading with ultra-low brokerage charges. Zerodha is also the best broker offering brokerage free delivery trades and commission-free investment in direct mutual funds.
The management of Zerodha has a clear vision; they are transparent and the customers can reach them easily.
Note: Zerodha doesn’t offer services like research and recommendations, trading tips and personalized services i.e. relationship manager.
Does a discount broker like Zerodha can really make a profitable business by offering trades at Rs 20 ?
A discount broker like Zerodha focuses on core brokerage business.
They keep their operation cost really low by not offering services like research, margin funding, local branches etc.
They invest in technology and encourage online trading through mobile, web or installable trading terminal. Zerodha focuses on online traders and does so by being mostly online and with centralized operations in Bangalore.
Reduced brokerage allows traders to trade frequent which intern to increase the volume. Stock exchanges offer incentives to the brokers for high volumes as it increases liquidity in the markets.
Almost zero spending in advertising saves big amount for Zerodha. In initial 6 years, their customer referral model worked really well for them. The customer referral program did enable its customers to refer friends and earn 10% of brokerage paid by their referred friend. Note the customer referral program was discontinued in mid 2018.
- Zerodha has other source of earnings including:
- Interest earned on the money customers keep with them. This contributes to over 25% of its revenue.
- Demat account charges
- Call & trade charges
- Part of exchange transaction fee
- Monthly fees changed for add-on trading tools offered.
- Commission when customer applies for corporate FDs, NCD and bonds.
Is Zerodha legit?
How is Zerodha as a broker?
Does Zerodha do proprietary trading?
Can Zerodha run away with my money?
Is Zerodha reliable?
Is Zerodha legal in India?
Can Zerodha be trusted?
How is Zerodha for trading?
- Is Zerodha Demat Account safe?
Yes, your Zerodha demat account is safe. The demat account is opened with CDSL (Central Depository Services Limited), one of the 2 central depositories in India. Zerodha’s role in the demat account is limited to acting as an intermediary between the customer and the central depository.
Zerodha doesn’t keep any customer shares in the pool account.
- How much safe is Zerodha Broker?
Trading with Zerodha is safe. Like all registered stockbrokers, the company is regulated by SEBI guidelines. It is a member of BSE, NSE, MCX, and CDSL. It is audited by the exchanges regularly.
Zerodha has a track record of around 10 years of strong management practices. Till date, it has not been reported for any major regulatory violation.
Zerodha is a debt-free company that underscores its sound financial position.