Zerodha Teams Up With smallcase To Launch Mutual Fund Business

Investech unicorn Zerodha will form a joint venture with investech platform smallcase to foray into the mutual fund business through the launch of its asset management company (AMC), said founder Nithin Kamath in a Twitter post on Wednesday (April 12).

Announcing the collaboration on Twitter, Zerodha founder Nithin Kamath said on Wednesday (April 12), “While awaiting the final approval of our AMC (mutual fund), we asked if we should build it ourselves or collaborate. Given the 6+ years of experience that smallcaseHQ has in building investment products, it made perfect sense to create a joint venture (JV) to build the AMC. 

Zerodha received an in-principle approval from the Securities and Exchange Board of India (SEBI) in September 2021 to start its asset management company. 

Zerodha is looking to build low-cost passive mutual fund products for India with smallcase, Kamath said.

“What worked well in the journey of zerodhaonline was to collaborate vs trying to build everything ourselves. It started with Kite Connect APIs that allowed startups to build on top of us (broking as a service). It led to Rainmatterin and our first partnership with smallcaseHQ,” he added.

Founded by Vasanth Kamath, Rohan Gupta, and Anugrah Shrivastava, Sequoia-backed smallcase last raised $40 Mn in a Series C funding round from the likes of Faering Capital, Amazon SMBhav  Venture Fund (ASVF), and Premji Invest in 2021. The startup enables retail investors to invest in portfolios of broker-partner stocks and exchange-traded funds (ETFs). 

“In the last six yrs, smallcases have been successful in helping millions of demat account holders build a healthy long-term portfolio and there’s immense potential to bring the same principles of simplicity and transparency to mutual funds to bring in a new segment of investors,” said smallcase cofounder and CEO Vasanth Kamath in a Tweet.

“The upcoming AMC will be a joint venture between Zerodha and smallcase and will use learnings and shared values from both companies to build an enduring fund house,” he added.

Zerodha, founded in 2010 by Nithin and Nikhil Kamath, is bootstrapped and has been profitable since its first year of operations. Its net profit surged 87% year-on-year (YoY) to INR 2,094 Cr in FY22, while operating revenue grew 82% INR 4,963.7 Cr during the year.

Meanwhile, smallcase posted a 196% YoY widened loss of INR 76.2 Cr in FY22.

As per an Inc42 report, India’s fintech ecosystem is estimated to have a $2.1 Tn market opportunity by 2030, growing a CAGR of 18% between 2022 and 2030. Of this, the investech market is projected to reach $74 Bn in market size by 2030 from $9.2 Bn in 2022.