The Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI) are mulling over allowing the issuance of fractional shares.
Earlier, this proposal was put forth by the company law committee in 2022, necessitating amendments to the Companies Act. This may prove to be particularly beneficial for listed entities. The government and SEBI are still to take a final call on the detailed modalities and minimum fraction allowable.
If introduced, the move will enhance access of retail investors to high-value shares while giving a fillip to market liquidity and diversifying company ownership. Typically, fractional shares would allow investors to purchase portions of a full share that are high-value stocks minus the huge price tag.
In case fractional ownership is allowed, an investor could invest, for example, Rs 25,000 and own a quarter or even smaller fractions of a share. Generally, many Indian entities have individual share prices over Rs 20,000.
The thought behind introducing fractional shares is being raised amidst a spike in equity market participation, with demat (dematerialised) accounts experiencing a threefold surge from FY20 to August 31, 2023. Thus underscoring broader financial inclusion and evolving risk perceptions.
Fractional ownership is already permitted in the US markets, and a large number of Indian investors have invested in fractional shares of various renowned companies.
However, fractional ownership concepts are already present in a few of the other asset classes, including real estate. Some startups even offer platforms for investors to engage in fractional investments in physical assets.
If introduced, the move will not merely lead to a shift towards financial democratisation but also a potential catalyst for market vibrancy and inclusive investment opportunities, allowing small investors to have a share in the high-value stock pie without shelling out a huge amount.
While empowering retail investors, this development would foster a relatively broader and more diverse investment universe.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.