Beyond Broking: How Zerodha Is Restacking Its Revenue Pyramid

Zerodha made a name for itself by letting investors easily invest in the stock market and mutual funds. But now it wants to help companies get to the stock market.  

Last month, the company filed an application with SEBI seeking a Category-I merchant banking licence, which would let Zerodha run IPOs, advise on M&As and buyouts, underwrite various kinds of issues and sit at the same table as SBI Capital Markets, Kotak Investment Banking, Axis Capital and ICICI Securities.

These are the names one is used to seeing in association with big-name IPOs in India, and Zerodha could soon join them, if SEBI clears the path. More than a dozen firms including Societe Generale Securities, InCred Capital, Haitong Securities India and Capri Global Capital are in the same queue, chasing the investment banking opportunity. 

When we narrow this field down to Zerodha, the focus on investment banking is a shift from its core identity of being a zero-commission, no-frills trading app for retail investors and professional traders. 

But Zerodha’s management believes this is a logical evolution. Somnath Mukherjee, VP of corporate development, told Inc42 that Zerodha can leverage its existing businesses to rope in large institutions and enterprises as clients. 

Besides this, the company is also experimenting with niche products like loans against insurance policies,  investments in US stocks via GIFT city, portfolio management services and wealth advisory. 

In the past year, it has pushed forward on the margin-trading facility, which has become a major growth area for discount brokers. Zerodha also claims to have about 10% of all retail and HNI assets under management (AUM) in India through its wealth tech business. 

Further, its Zerodha Fund House AMC business added lifecycle funds in late June, but now the Zerodha group is now eyeing the world beyond discount broking more seriously. 

While many of the above products are still early, the broader intent is to tap the user base of more than 8 Mn investors and leverage the 15% share of daily trading volume for newer revenue streams. 

Diversification Mode For Discount Brokers 

In many ways, SEBI and regulators pushed Zerodha into this diversification drive. Like its rivals Groww and Angel One, Zerodha was also at the receiving end of SEBI’s regulations which shook up futures and options (derivatives) trading markets in India.  

In July 2024, SEBI released a consultation paper aimed at curbing excessive retail participation in derivatives. The proposed measures ranged from true-to-label transparency norms and tighter disclosures to expiry-day restrictions and higher compliance requirements for brokers and intermediaries. Together, these changes sought to rein in speculative behaviour and improve risk awareness.

Later, the STT on futures and options was increased with effect from October 1, 2024, a step explicitly intended to discourage short-term speculative trading and curb the rapid growth of high-frequency retail participation in index options.

The cumulative impact of these measures has been visible in market data. Overall F&O notional average daily turnover (ADTO) declined by around 38.07% between June 2024 and June 2025, while individual investor participation in the F&O segment fell by approximately 36.31% over the same period, signalling a sharp pullback from retail traders as trading costs rose and regulatory friction increased.

After the crackdown on the F&O frenzy in the market, finance minister Nirmala Sitharaman announced raising the Securities Transaction Tax (STT) on futures and options at the Union Budget 2026. 

Zerodha’s operating revenue fell 12% to roughly ₹8,847 Cr in FY25, down from ₹9,993 Cr the year before, and net profit dropped 23% to about ₹4,237 Cr, largely a function of SEBI’s tightening of F&O norms and a rising securities transaction tax. 

All this meant, Zerodha — like its closest rival Groww — has more or less been compelled to diversify.   

And the merchant banking bet is its biggest one. A traditional merchant bank has to build retail distribution for an IPO from scratch through syndicate networks, while Zerodha already has north of 68 lakh active clients sitting inside its Kite professional trading platform and Coin app for mutual funds trading. 

Inside Zerodha, the new reality for the high-margin F&O trading business, prompted several days of restrategising, Mukherjee told us. 

“Our revenues are very dependent on how the markets are performing and regulations. If markets do very well, all stock brokers will do well. If it does very badly, high chances are that we’ll also kind of see a hit in terms of revenues,” he pointed out.

That dependence had always been an uncomfortable reality for platforms like Zerodha.

Diversifying brings more predictability in the overall revenue that can resist cycles and regulatory blows. “The idea was that we try to diversify away from being so correlated to stock markets,” Mukherjee added.

Zerodha remained steadfast in its core business even as multiple discount brokers including Groww, Angel One and Upstox introduced brokerage charges on equity delivery trades, which had traditionally remained free across discount broking platforms.

For many observers, the move reflected the growing pressure on brokerage profitability, but Zerodha zagged this wave. 

“The idea is, since we don’t have investor pressure or revenue targets as such and we’re already quite self-sustainable, we continue passing all the benefits to customers and remain at zero brokerage.” Mukherjee said.

Zerodha cofounder Nithin Kamath also publicly criticised the industry’s gradual shift towards regular mutual funds. Incidentally, this came shortly after Groww introduced an optional proposition around commission-based mutual fund distribution for customers seeking advisory services.

Behind the scenes, however, the company is quietly building entirely new revenue engines that have little to do with brokerage.

Rather than earning more every time customers trade, it wants to earn when they borrow against securities, buy insurance, invest internationally, manage wealth, or even seek tax planning advice.

The Diversification Playbook — Lending, Insurance And AMC

The first and perhaps the earliest diversification sign came in the form of margin trading facility or MTF. This meant Zerodha effectively began lending money to investors to invest in the market, with their existing stocks kept as collateral. 

The MTF was launched in January 2025 and has already scaled to roughly ₹8,500 Cr in book size, according to Mukherjee, though Kamath said in May that Zerodha’s MTF book was at ₹7,400 Cr. 

MTF, in effect, allows Zerodha to monetise its existing client base differently. It earns interest on leveraged positions, a business model that is also less sensitive to F&O volume swings. 

Angel One’s MTF book grew to ₹5,450 Cr in FY26 from ₹3,700 Cr in FY25, whereas Groww crossed ₹2,800 Cr as of Q4 FY26, as per disclosures. Zerodha seems to be ahead of its closest competitors in this regard, but given that MTF is a relatively new launch by these companies, the trajectory might change in the next year. 

The second bet is lending through Zerodha Capital, built on the company’s own NBFC licence, offering loans against securities. Mukerjee told us that the secured loan book has grown to ₹750 CR.

Mukherjee added that the company will never venture into unsecured loans, but has plans for loans against insurance policies.

Partnerships Paying Off

Rather than build every capability in-house, Zerodha’s preferred model is to also partner with founders who already have built niche wealthtech products.

Mukherjee says that one of the clearest examples of such partnership is Zerodha Fund House which was built through partnership investment tech startup smallcase in which Zerodha had acquired a strategic stake. 

Zerodha Fund House, the company’s asset management arm sells passive, index-based funds, distributed exclusively direct, with zero enablement for third-party distributors selling regular plans. In this regard, it competes directly with Groww AMC. 

Zerodha Fund House has seen its AUM grow from ₹4,934 Cr in April 2025 to ₹13,133 Cr in April 2026, compared to Groww’s ₹4,730 Cr as of April 2026.

Another example is Zerodha’s partnership with Bengaluru-based Tijori Finance, which caters to other AMCs and market research enterprises. Tijori uses AI to collate and analyse company filings, while flagging inconsistencies during earnings calls for research and advisory firms.  

“The idea was to be light-touch research and execution only rather than compete with the handful of large brokers who already dominate the relationship-heavy, human-led research and corporate-access business,” as per Zerodha’s executive.

Taken together, these don’t seem to be  disconnected side bets; they’re an attempt to rebuild Zerodha’s revenue pyramid from the ground up, into something flatter and less dependent on any single line. 

“The idea is not just investments,” he explains, adding that Zerodha will cover insurance, tax planning, estate planning and more for HNIs.

A comprehensive wealth management platform which caters to a growing class of investors as well as institutions beyond broking is at the heart of Zerodha’s second act.

The next phase of wealth management will revolve around advice rather than execution. “We’re thinking of it much more like an RIA model than a distributor model,” he says.

Will Zerodha’s Next Act Fly?

Every new initiative whether MTF, secured lending, insurance, passive asset management, institutional execution or digital advisory addresses the same underlying problem: how can Zerodha reduce dependence on trading?

That question also has become increasingly urgent as India’s brokerage industry matures, which is why we are seeing Groww also take new bets. 

Retail participation is no longer growing at the pace seen during the pandemic. Regulations are becoming more interventional and directly impact the economics of derivatives trading. Brokerage, once viewed as an endlessly scalable business, now appears increasingly cyclical.

Whether Zerodha ultimately succeeds remains uncertain. Even Mukherjee acknowledges these are long-gestation bets that will require years before their full impact becomes visible. Plus, it can count on years of successive profits to grow these bets. 

The question for the next decade is not whether Zerodha can attract more traders. 

It is whether a company built on discount broking can evolve into a full-stack financial institution which can do everything from investment banking for IPOs to loans and wealth management, essentially just one stop short of a bank. 

[Edited By Nikhil Subramaniam]

 

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