Zerodha turns 16: Nithin Kamath says user additions slowing, MF business 'slipped up a little'

Zerodha founder and CEO Nithin Kamath said the brokerage business has had a difficult couple of years, with market activity slowing after Indian equities peaked in September 2024 and regulatory changes hurting revenue. In his annual note to customers as Zerodha turned 16, Kamath said the pace of new user additions and overall trading activity has slowed sharply as the bull market has taken a pause.

Kamath said Zerodha's active customer market share and demat account share may have reduced, but its retail AUM share has continued to grow. He said the AUM number reflects customer trust.

He also said Zerodha may have "slipped up a little" in mutual funds, but expects the upcoming mutual fund integration inside Kite to improve discoverability and customer experience. Zerodha is also about to launch US investing and mutual fund transactions on Kite.


Kamath said the broking business has little room to rely on compounding. While annual maintenance charges rise as more clients are added, they contribute only about 2% to revenue. The rest of the business, he said, effectively starts from a clean slate because brokers must settle unused client funds every month or quarter.

The sharpest warning in the letter was on margin trading funding, or MTF. Kamath said Zerodha’s MTF book has grown to about Rs 9,000 crore, adding that this part of the business is “scaring” him.

MTF allows investors to buy shares by borrowing part of the money from the broker. It can improve returns when markets rise, but losses can deepen quickly when stocks fall. "The problem with leverage is that it gives you a boost when things are good. But when things go bad, they can get bad really, really quickly," Kamath said.

He said clients have borrowed about Rs 6,000 crore under MTF, which is around 25% of Zerodha’s net worth. Kamath said Zerodha is comfortable at its current level, but warned that brokers can borrow up to five times their net worth, creating the risk of market contagion if leveraged positions unwind sharply.

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Kamath said Indian markets are still shallow, and liquidity can disappear fast during a fall. The broking industry is already heavily dependent on futures and options activity, he said. Adding leverage through MTF can turn a sharp market correction into a “double whammy”.

He also said MTF now contributes about 10% of Zerodha’s revenue, giving the business some predictability through interest income. But he added that MTF is not a good product for most customers, and the best a broker can do is educate users about the risks instead of pushing them to borrow money to invest.

The slowdown in India has also come at a time when global markets have done better. Kamath said the Nifty 500 has gone nowhere in the last two years, while markets such as the US, Japan, Europe, South Korea and Taiwan have rallied. He said Indian public markets did not have a strong AI play at a time when global AI-linked stocks saw a major bull run.

He also pointed to pressure from the energy crisis linked to the Middle East war, rupee weakness and FII outflows. Since India imports most of its crude, gas and gold, the pressure on the rupee has hurt market sentiment further, he said.

Despite the slower market, Kamath said Zerodha’s customer assets under management continue to grow. He said Zerodha is now the largest broker in India by AUM, calling it the number that matters most because trading account balances can move in and out, while AUM tends to stay longer.

On the technology side, Kamath said the company’s internal enthusiasm remains high. He said Zerodha’s core team across technology, product, business and operations is still fewer than 100 people, which has helped the company stay efficient despite its scale.

He said artificial intelligence is helping the team build and improve products faster without compromising quality. Zerodha has also open-sourced several internal tools such as Whatomate, Logchef, Exampro and Libredesk.

Kamath said content remains a key part of Zerodha’s work. He said Varsity, Varsity Live, Tribe, In Her Interest, Zerodha Markets and Zero1 have helped the company become a modern financial media platform. He said Zerodha’s content works because it is shared without an agenda.