Financial technology Startups are trying to draw the masses into stock market and mutual fund investing by drastically simplifying choices, and making it easier and less expensive to make transactions
Hi Everyone Today We Will Talk About How Startups are Making Stock Market Easy
In India, less than 1% of the population invests in stocks either directly or through mutual funds. In US, that figure is 50%. While India has 2.7 Crore Demat Accounts, only 10 lakh are used for active trading.
This happens because of the Complex Nature of Trading in India. If a Newbie Decides to invest in the Stock Market then he will be dependent on the Brokers. A broker doesn’t want to make the investor independent and thus want their control in the trading when it comes to Selling & Buying stocks. The Huge Difference between the Demat Account Opened and Actively used Demat Account’s for regular trading shows a Huge Potential and Opportunity to Startups.
Here we will Discuss about some of the Startups that are making Stock Market Easy for A Common Man (Investor).
Nikhil & Nithin Kamath
The most successful is perhaps Zerodha, one of the earliest startups of this genre, 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.
Startups are Simplifying Choices, Making Stock Market Easier & Less Expensive.
Zerodha charges a flat Rs 20 for futures & options and intraday 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 provides investment advice and explains financial terms.
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.
Anugrah Shrivastava used to be a research executive at Japanese investment bank Nomura. During his 3 Year stint at the firm, he realized that many stocks move in the same direction based on a theme, event or development. What if he could build a technology product that automated investments based on such movements, he thought.
Rohan Gupta & Vasanth Kamath
He got together with Vasanth Kamath and Rohan Gupta, friends of his when they were at IIT Kharagpur, to start a startup that would help individuals to invest in an idea they believed in. They called it Smallcase. Launched in July 2016, 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 2 clicks.
Most startups are targeting professionals with an annual income between Rs 8 lakh and Rs 24 lakh, says Parag Dhol, MD of Inventus Capital Partners, an investor in Chennai based FundsIndia, which has more than 1 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%.
Scripbox is a startup 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; 4 Equity, 4 Debt, and 2 Tax Saving, which they identify as the most promising. Investors choose from only these 10, and the 10 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. Hence Scripbox is following the Core Belief of the startup that is simplifies the investing process for the Stock Market Newbies.
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 7 Years and most wealth managers would not find working with such professionals over such long periods remunerative. “We can personalize wealth management for Millions of customers,” he says.
Funds for Stock Market Startups
Funding plays a curtail role in Growth and Success of a Startup. There is not a lot of money flowing as compared to E-commerce, Cab Aggregators or other lucrative niches of the startup ecosystem.
Talking about the Funding Rounds the Biggest Gainer will be FundsIndia with $15 Million Added to their Bank Account for Revolutionarizing the Stock Market Niche followed by MyUniverse with $10 Million and Subsequently $4 Million to Upstock , $3 Million to Scripbox & $3 Million to 5nance.
It’s Not A Walk On The Cake
But there are challenges too for the new tech-based ventures. Doing KYC (Know Your Customer) is not easy for online only startups. 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 on the digital playgrounds. Angel Broking, which has 10 lakh clients, recently launched an Artificial Intelligence (AI) 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 the innovativeness of startups. Smallcase co-founder Vasanth Kamath says thei algorithms have analysed the investing patterns and philosophies of legends like Warren Buffet.
“So, If You Want to Invest like Warren Buffet, You have a Bucket of Companies for that,”
– Vasanth Kamath, Co-founder, Smallcase