Zerodha gets Sebi’s in-principle nod to launch mutual fund business

Zerodha has received a licence from capital markets regulator, the Securities and Exchange Board of India (Sebi), to set up an Asset Management Company (AMC).

The in-principle approval from Sebi will allow the Bengaluru-based startup to launch its own mutual funds (MFs), founder and chief executive Nithin Kamath tweeted on Wednesday.

Zerodha is India’s largest retail broker by registered users.

“So, we just got an in-principle approval for our AMC (MF) license. I guess now comes the hard part (sic),” Kamath tweeted.

Zerodha had applied to the capital market regulator in February 2020, just months after Sebi allowed

firms to enter the MF business.

A spokesperson for Zerodha did not offer comment.

Flipkart cofounder Sachin Bansal’s fintech venture Navi has also received regulatory approval to launch its own AMC.

In December 2019, Sebi eased regulations for fintech startups planning to enter the MF industry. It said entities with a net worth of ₹100 crore and five years of being profitable were eligible to sponsor MFs.

AMCs should also maintain their minimum net worth continuously and not only towards the end of the year.

“It’s a great move, no question. Zerodha had also applied for a licence, but Covid-19 slowed the market. We need more players to come to this market to foster innovation,” Kamath told ET in an interview in January, on Sebi’s relaxations.

“The entry barrier has stopped many (from entering the MF industry). The problem with mutual funds today is that they are very complex for retail investors. With newer players coming in, I think the products will become simpler and innovative,” Kamath had said.

The move comes at a time when Sebi has given approvals to firms such as Bajaj Finserv and discount broker Samco to launch MFs.

Navi recently applied to Sebi to launch as many as 10 new MFs, all of which are set to be passively managed.

These funds mirror the performance of an underlying index and typically do not need a fund manager.

Zerodha has led the pack of new-age fintech brokers including Groww, Upstox and Paytm Money, which have seen strong traction on their platforms by retail investors as millions of Indians flocked to stock investments, attracted by the Nifty and the Sensex recording peaks repeatedly since the onset of the Covid-19 pandemic.