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Zerodha’s core business is no longer growing. Regulatory curbs and changing investor behaviour are cooling trading activity and squeezing brokerage revenue. Broking revenue fell 10.4% from ₹3,066 Cr in FY25 to ₹2,738 Cr in FY26. Net transaction charges (income earned from exchange-related transaction fee rebates) also fell to zero from ₹400 Cr in FY25 due to SEBI’s true-to-label norm framework. In a blog post, CEO Nithin Kamath hinted that its overall top line remained almost flat in FY26 versus ₹8,847 Cr a fiscal year ago. Despite the revenue squeeze, Zerodha kept its bottom line largely intact, with profit rising marginally to ₹4,283 Cr in FY26 from ₹4,231 Cr in FY25. So, with its core revenue engine slowing, what is keeping Zerodha’s profits afloat? The answer: Zerodha is increasingly making money from sources other than brokerage. Interest income (₹2,269 Cr): The discount broker earns interest on its cash balances and other interest-generating assets. Delayed payment charges + MTF (₹448 Cr): It earns money when customers delay paying for trades and, through MTF, when customers borrow money to buy stocks. AMC charges: Zerodha’s asset management business is also generating more fee income, though it is still relatively small. In Q1 FY27, the discount broker said that nearly 40% of its gross revenue came from the businesses outside its core trading platform. While these revenue streams are cushioning the impact of falling brokerage income, are they large enough to replace the core business entirely, especially when its arch-rival Groww now has an active client base almost twice the size? Zerodha’s User Problem Is Bigger Than It Looks Regulatory changes have added to the pressure on Zerodha’s core brokerage business, particularly by curbing derivatives and currency trading activity. SEBI’s derivatives clampdown and RBI’s tighter rules around currency futures and options (F&O), introduced in 2024, reduced trading activity across segments. According to Zerodha, these regulatory changes led to a 20-30% drop in F&O activity across exchanges and brokers. INR currency F&O volumes fell 90% after the RBI introduced rules requiring trades to be backed by an underlying foreign currency exposure. But regulations do not fully explain the divergence between Zerodha and Groww, which has almost twice as many clients as Zerodha. In July, Groww added 70,119 active clients, taking its base to 13.12 Mn and its NSE market share to 28.88%. Zerodha lost 38,725 clients, leaving it with 6.76 Mn and a 14.88% share. The entire broking industry added only around 8,000 net active clients during the month. The divergence is visible in revenue as well. Groww’s operating revenue rose from ₹ 2,609 Cr in FY24 to ₹4,645 Cr in FY26, an increase of about 78%. Zerodha, by comparison, saw its revenue decline from nearly ₹9,994 Cr in FY24 to around ₹8,847 Cr in FY26. However, according to Rahul Sharma, head of office research at Equity99, Groww and Zerodha are not competing for the same customer or the same kind of revenue. While Groww has focused more on mass-market equity, mutual funds and SIPs, Zerodha continues to derive a significant portion of its revenue from active F&O traders. Even CEO Nithin Kamath argues that the active-client market is not the most important metric. This, however, does not answer the fundamental question: if Zerodha is not trying to win on users, can it extract enough value from its existing base? MTF Rescue Boat Margin trading facility (MTF) is helping Zerodha build a new revenue stream, but it is not the only one trying to reduce its dependence on trading-led revenue. Angel One has been moving aggressively in the same direction, with client funding, wealth management, asset management and distribution becoming a larger part of its business. Zerodha launched its MTF offering in December 2024, after years of debating whether to enter the segment. At the time, Zerodha said it made little business sense to remain the only large broker without the product. The product has since scaled. Zerodha’s MTF book has reached around ₹9,000 Cr, with customers borrowing about ₹6,000 Cr. Per Kamath, MTF contributes roughly 10% of the startup’s revenue. The financials show the change clearly. Delayed payment charges and MTF generated ₹448 Cr in FY26, compared with ₹22 Cr in FY25. The reason this matters is simple: Brokerage revenue depends heavily on customers trading. MTF allows Zerodha to earn interest from customers who borrow to invest, creating a revenue stream that is less dependent on the number of trades. The bigger issue is that MTF is being built against a business that remains heavily exposed to derivatives. Avinash Gorakhshar, founder of Avinash Mentor Research, said continued regulatory pressure on F&O could make Zerodha’s slower diversification into mass-market wealth products a growth constraint. But MTF is not yet large enough to replace the revenue lost from Zerodha’s traditional business. It puts Zerodha in an interesting position. Angel One, which had a broadly similar active client base to Zerodha at the end of FY26, has also been building its client funding business; its average client funding book stood at ₹5,305 Cr for FY26 and rose to ₹6,783 Cr by June 2026. It is pertinent to note that Angel One’s client funding book includes MTF loans and period-end trade receivables, net of non-interest-bearing receivables. Then there is also a limit to how aggressively Zerodha can push the product. Kamath has acknowledged the risks associated with leveraged investing and said the startup does not want to encourage customers to borrow simply because it generates revenue. The Diversification Dilemma Zerodha remains profitable, its AMC is scaling faster than Groww's AUM, and its MTF book has grown rapidly. But the timing of some of these moves is tricky. Zerodha had a significant first-mover advantage in digital broking, but MTF came only in late 2024, while it launched AMC in 2023. It is now bringing mutual fund transactions to Kite, after keeping the trading and mutual fund experience separate for years. The gap is more visible in wealth management. Groww has moved into the affluent investor segment through W, its wealth management platform, which offers access to Portfolio Management Services (PMS), Alternative Investment Funds (AIFs) and private market opportunities. Lalit Keshre’s Groww entered the segment after acquiring Fisdom in October last year, a deal that brought wealth management and distribution capabilities into its business. Zerodha, by comparison, remains largely a self-directed investment platform through Kite and Coin. Its Zerodha Fund House gives it an asset management business, but that is different from offering personalised wealth management. However, not everyone believes Zerodha’s slower customer growth means it has been slow to respond to changing market realities. Sharma of Equity99 argues that the startup is making a deliberate trade-off, prioritising profitability and capital efficiency over aggressive customer acquisition. But with Groww moving faster into wealth and adjacent products, Zerodha risks falling behind if its diversification does not scale quickly enough. All in all, Zerodha is not a troubled business. It remains highly profitable, has a strong brand, a sizeable customer base and growing businesses beyond brokerage. But the economics of digital broking are changing, and the company can no longer rely on its traditional F&O-heavy model to drive growth. Therefore, it will have to diversify fast enough before its core business shrinks further. Edited By Shishir Parasher Creatives: Varshita Srivastava
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