Nikhil Kamath is building his new startup True Beacon

In 2010, two brothers changed the way Indians trade and invest in the stock market.

After making Zerodha a billion-dollar startup, all bootstrapped,one of the brothers is now disrupting another industry.

Here’s what Nikhil Kamath is building at his new startup True Beacon:

True Beacon is a hedge fund. So, let’s first understand what a Hedge Fund is:

A hedge fund is a bunch of serious suits & tie Joes managing a pool of money. They use different techniques to get their investors maximum returns.

Simple right? Not so much...

It’s not like a mutual fund where everyone can invest. It’s only meant for High Net Worth individuals and professional investors who know what they are getting their money into.

Also, it’s not regulated by the SEC in the US so these Joes have a pretty free hand.

In India, they are slightly less regulated.

Actually, in India, there are no Hedge Funds as per se, they are called Alternative Investment Funds (category 3)

How is Nikhil Kamath’s True Beacon different?

First: they don’t charge a management fee, annual fee or anything like that.

Their model is pretty simple: Unless they make you a return, they are not going to make any money themselves.

If they generate profits, they charge a 10% performance fee from the profits. Simple transparent system.

Usually in Hedge funds because the returns are high, they charge a high fee.

There’s a management fee (usually around 2%) for managing your money.

Second is the performance fee (around 20%) which is a percentage of the profits they earned for you.

Nikhil did a "Zerodha" again here

Also in True Beacon, there’s liquidity and no exit fee. Meaning you can invest, and exit anytime you want.

This isn't a common thing in most Hedge Funds...

Don’t let the name deceive you!

These were only meant to “Hedge” your money earlier (Hedging means protecting).

Now Hedge funds are all about swooshyyyy profits and high risk.

How do hedge funds generate these returns and how do they earn?

Hedge funds do a lot of complicated finance stuff😂

They invest, trade, do futures & options and what not.

The crux is they take leverage over their client’s money to increase their total earning amount.

A hedge fund manager is basically incentivised to generate a higher return for her clients.

A mutual fund manager gets a cut from the money under his management, not the profits.

A hedge fund manager gets a percentage of the profits.

That's why a hedge fund is different from a mutual fund. The incentivised manager would make sure you get more profits.

We took the example of True Beacon to explain Hedge Funds. Hope you liked it❤️