Recently, the share price of MRF reached seven figures, surpassing one lakh in value, which made headlines. What percentage of the Indian population can actually afford to invest in expensive shares like Honeywell Automation and Page Industries, which are currently selling for more than 37,000 rupees?
Not many individuals can afford to include these shares in their portfolios. How can this be resolved? We can solve this problem by using fractional shares. Though it is not possible to buy fractional shares right now in India, news reports indicate that the Securities and Exchange Board of India (SEBI) is considering implementing the idea of fractional shares. It will open up the stock market to more people than ever before by letting you buy shares in valuable companies.
Reasons Why Investors Should Consider Fractional Shares
Investors might get the following benefits from fractional shares:
Accessibility
Even tiny investors can buy high-priced stocks through fractional shares, which could be too expensive for complete units. The stock market becomes more accessible to more people as a result.
Diversified Portfolio
Investing in fractional shares allows you to spread your bets more thinly across different assets. Diversifying your holdings across multiple stocks allows you to lower your overall investment risk.
Saving Money
Investing in fractional shares allows you to better distribute your funds. You may find that your capital is better utilized as a result.
Lowers Portfolio Risk
One way to manage risk is to own fractional shares in various investments. It lowers the overall portfolio risk associated with a single stock's bad performance.
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Rupee Cost Averaging
A dollar-cost averaging method is easier to implement with fractional shares. Maintaining a regular investment schedule allows you to purchase more shares at low prices and fewer shares at high prices.
Advantages of fractional shares to businesses
The advantages to the business of fractional shares are as follows:
Increasing the Pool of Potential Investors
By making fractional shares available, businesses can reach out to more people, including those with smaller budgets or who would rather start with a smaller investment. Whenever a stock price in India rises above a certain threshold, corporations are currently required by law to split their shares. One way to diversify a company's ownership is to provide fractional shares.
Liquidity
The stock of a corporation can be more easily sold when divided into fractional shares. There may be more trading activity and a more liquid market for the company's stock if more investors possess fractional shares.
Market Capitalization Growth
An increase in the market capitalization of a company, which could improve its image and appeal to investors, could be the result of a more robust investor base and greater liquidity.
How do fractional shares function?
Under the current legal framework, fractional shares pose a challenge in India. Fractional shares, on the other hand, are not new to the United States. Before we try to implement fractional shares in India, let's examine how they function in the US.
In the United States, investors can't purchase fractional shares unless they have a brokerage account that deals in such trading platforms. The majority of large US brokerage houses provide this service.
You should know that US corporations do not offer fractional shares. What gives rise to the ownership of fractional shares by investors? Brokers in the US can purchase and hold shares in their name, so it's feasible.
Is it possible to use fractional shares in India similarly?
There is a different system in place in India for investors to own fractional shares. The reason is, that brokers in India are not allowed to own shares in their names. Therefore, they are unable to distribute fractional shares as dealers. Fractional shares comparable to those in the US cannot be issued in India until SEBI amends the regulation.
Conclusion
No Indian company may buy, sell, or deal in fractional shares according to the country's company law. As per the Act, all parties who sign the Memorandum of Association (MoA) are obligated to subscribe for at least one complete share.
Apparently, SEBI is planning to modify this regulation so that fractional shares can be traded in India. The Ministry of Corporate Affairs and SEBI are collaborating to revise this law. Indian investors will be able to own fractional shares if the rule is altered.
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