Is Fractional Investing Now Possible In India?

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  • 06 Nov 2023
Is Fractional Investing Now Possible In India?

Kotak Insights | Date 06/11/2023

Ever wished to own the most expensive stocks in the Indian market?

Imagine owning one stock of MRF which currently trades at around Rs 1,09,000 per share!

Buying high-priced Indian shares might seem out of reach for some investors. But what if we told you that there’s a light at the end of the tunnel and you could soon be able to own a fraction of a share of these stocks?

Well, it’s possible. Here’s how…

Think of a company’s one share as a whole pie.

If you split this pie into 10 pieces, 10 customers get to enjoy a piece of these delicious pies.

Similarly, in the world of investing, fractional shares are like your pieces of a pie. They allow you to own a piece of a particular stock without having to dig deep into your pockets. This means you can own less than one full share of a company.

Suppose if you wanted that MRF stock itself, a fractional share concept would help you buy a portion, say, Rs 10,000 or Rs 5,000 worth of that stock.

Let us have a look how this could benefit traders and investors…

Buying just a few stocks creates a concentrated portfolio. And this can be a costly endeavor.

Suppose you build a portfolio of Rs 300,000 with just MRF or Page Industries, your money will be exhausted by buying a few stocks of these companies.

But fractional shares provide a solution. If the same thing is done via fractional shares, they enable investors with limited funds to buy parts of high-priced stocks.

In fact, there are many Indian companies whose share prices are well over Rs 20,000 apiece like Page Industries, Honeywell Automation India, Shree Cement, Abbott India, Nestle India among others, and fractional investing comes in as an excellent option in such cases

The concept of fractional ownership is common in the U.S. markets and many Indian investors have bought fractional shares of popular companies like Apple, Meta (earlier Facebook), and Alphabet, among others.

In fact, Warren Buffett’s Berkshire Hathaway’s stock price is around 5.15 lakh dollars which comes to almost Rs 4.27 crore!

So, with fractional investing, purchasing U.S. stocks is also more economical.

Sadly, no!

Currently, fractional ownership is not present in India.

But this concept exists in some of the other asset classes like real estate. Real Estate Investment Trusts or REITs offer investors an opportunity to own a part of a larger real estate project.

Apart from that, the concept of fractional share investing is facilitated via different forms in stock market as well.

Fractional shares basically are a fraction of a full share. These fractions can also arise from corporate actions like stock splits, bonus, mergers & acquisitions, or dividend reinvestments.

Currently, fractional shares remain non-tradable, leaving investors without an option to trade them. And tweaks in regulations can help investors buy or sell these fractional shares.

However, there’s a glimmer of hope for stock investors!

The market regulator SEBI is working on introducing the concept of fractional shares in India.

Earlier, this proposal was put forth by the company law committee in 2022, requiring amendments to the Companies Act.

The government and SEBI are yet to take a final call on the details of fraction investing. But it’s good to note that there’s progress being made on this front.

The thought behind presenting fractional shares comes at a time when a surge in stock market participation is experiencing a threefold surge from FY20 to August 2023.

If implemented, this would smoothen the roadblocks for retail investors to hold shares of highly-valued shares. It would be a game-changer, making the stock market more accessible and providing a wider range of investment opportunities.

It will open ground for more investment opportunities and bring in more retail buying interest for stocks for various companies.

It will also open up doors for investors to diversify their portfolios.

So, it’s an exciting development that’s worth watching closely.

What are your thoughts on this? Which stock are you eager to own a fraction of? Let us know in the comments!

Until then,

Happy Learning!

Sources: Kotak Securities, Financial Express, Business Today, ClearTax

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

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