Nikhil Kamath became a 34-year-old billionaire as founder of the 'Robinhood of India.' He told us why millennials and Gen Zers have an investing edge over their predecessors, and shared his advice for retail traders.

Nikhil Kamath

Nikhil Kamath dropped out of high school at the age of 14 and started trading when he was just 17 years old.

Today, he is one of India's youngest billionaires at age 34 according to Forbes, and the cofounder of  Zerodha, a brokerage firm that's often dubbed as the Robinhood of India. 

Before starting the brokerage, Kamath and his brother Nithin were retail traders, managing their own money and that of friends and family. But high trading fees made it difficult to remain profitable. So they began streamlining some of their operation by using technology to replace physical relationships and managers.

As their costs began to drop, they attracted other traders to their community. The organic growth eventually led to the founding of their brokerage firm in 2010.

The brothers started with 487 accounts, and within 10 years, had over 4.5 million users. The growth is in line with the overarching trend of young retail investors entering the market in droves. They're also getting younger. For Zerodha, the average age of users dropped from 33 to 30 years old within the last year. 

Kamath says this shift will only continue to grow as the global economy changes and barriers to entry drop. And for him, that's a good thing. He believes millennials and Gen Z will do a better job at managing capital than their predecessors because they'll rely more on the market and have better access to information. 

He shared with Insider his thoughts on future investing trends.

The trend of the retail investor isn't going away anytime soon says Kamath. In fact, he believes it may replace financial advisors, mutual funds, and investment banks that charge high management fees. 

"I think asset managers of yesterday, all work on the model where they have middlemen, they have relationship managers, distributors, and they all charge a fee of between 1% to 3% to manage somebody's assets," Kamath said.

Kamath expects that users who get their start on a brokerage app, executing their own trades will likely stay the course, even as they get older and gain access to more funds. They'll realize that the ease and cost of transacting on their own far exceed the additional comfort of talking to a manager. The returns from actively managed funds also don't justify the fees. 

"History has shown us that passive funds have done better than active funds. If you were to pay an asset manager 2% a year, in two decades you'd paid half your principal in fees. If these same investors had bought a passive ETF product, which mimic the exchange, they would have probably done a lot better. So people [will] move away from asset managers, especially the kind who charge the statutory fee, immaterial of how the client does, if he makes money or does not," Kamath told Insider.  

He acknowledges that some active funds could perform well in a bear market, but the key is to look for low management fees or fees based on profit.

Declining interest rates will mean lower or risk-free investment vehicles like term deposits, savings accounts, and yields on debt won't match up to rising inflation for most places in the world. Future investors will have to look to the market if they want to see higher returns. 

"Every government is similar at the end of the day, be it America, India, UK, we all like to say that we have lesser inflation than we actually do. And we figure out different ways of calculating inflation to portray a number which is less than what is actually on the ground," Kamath said. 

Kamath says the US government artificially declaring a lower inflation rate has its purpose. It avoids an increase in Social Security benefits, or cost-of-living adjustment (COLA). And, refinancing America's huge debt pile will be more expensive as interest rates on debt Securities rise to compensate for inflation. 

"Personally, I think in America now the inflation is probably twice what they're describing because prices on the ground have gone up, but the government is not willing to come to terms with the fact that they have to declare a higher number. Understandable, because it has repercussions for them," Kamath told Insider. 

Real estate is another investable asset Kamath doesn't think will pay off for the younger generation because it's reached a peak. And moving forward, he doesn't expect it to beat inflation either. 

Current prices in urban areas that are largely unaffordable are causing millennials to move out of big towns. De-urbanization and a trend towards renting will not aid real estate prices either. 

"Real estate has plateaued. I would say across the world for the better part of the last decade or two decades. Traditionally, people who bought homes made a lot of money keeping all of their equity in a home. But that no longer is the case. So the lack of an investment vehicle, which allows younger people to get a reasonable rate of return will drive them towards equities in my point of view," Kamath told Insider. 

Not too long ago, only a few could get their hands on the latest news until it was able to percolate down to everyone else. That's not the case anymore. Retail investors have open access to a plethora of data that allows them to make informed decisions. 

"That creates a slightly better level playing field for younger people to participate. You know, a Bloomberg Terminal or a Reuters terminal, which has news wires, cost 10 years ago as much as $2,000 to $3,000 a month to just have a terminal, it still does," Kamath told Insider. 

Even though larger institutions may have access to technology that leads to faster execution when it comes to completing a trade, a young investor doesn't need to make a phone call to execute a trade. They can do it right from their phone.

"The younger generation has adopted technology much faster than the previous one. So if I have a 40 [or] 50-year-old client, an affluent one, he's quite likely to want to call a relationship manager or pick up the phone and dial somebody to buy something because he's not very tech-savvy and he does not want to go punch a button on a smartphone. The younger people, on the other hand, prefer to do it themselves that makes them a bit more agile than their predecessors. They're able to act faster," Kamath said. 

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