Nithin Kamath, founder of top stockbroker Zerodha, has cautioned traders and investors about the perils of relying on “finfluencers” who claim to offer quick riches through trading.
What Happened: Kamath pointed out in a blog post that less than 1% of traders manage to outperform the returns offered by a standard bank fixed deposit. He said that anyone, including influencers, who promises rapid wealth through trading is essentially engaging in mis-selling.
One core issue identified by Kamath is the perception that making money through trading is easy, which has led to a surge in dubious individuals selling trading courses, stock tips, unauthorized portfolio management services, and questionable financial products.
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He noted that such mis-selling has a long history but has found a new platform to thrive due to the internet’s reach. However, he also noted that in the online world, mis-selling leaves a trail, leading to potential repercussions.
A Broader Problem: Kamath’s comments come amid a fiery debate around finfluencers who push their followers to buy stocks and make other investments or provide financial advice without being SEBI registered. Several netizens have accused some of these financial content creators of sharing fake profit and loss statements to attract more followers to trust their recommendations.
A recent Securites and Exchange Board of India (SEBI) consultation paper proposes to limit such activities by disallowing SEBI-registered entities from associating with such unregistered advisors or analysts.
Collateral Damage: While Kamath says this could help curb mis-selling, he also raised concerns about the impact of such regulations on the livelihoods of thousands of referrers and associated persons who rely on introducing customers to brokers. He pointed out that these individuals play a crucial role in smaller cities and towns, contributing to the growth of India’s markets.
Moreover, he highlighted that Zerodha does not track individual customers’ profitability and does not validate P&L claims made by traders. To address this, Zerodha has introduced a verified P&L feature, which provides tamper-proof proof of a trader’s profit and loss.
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