During the summer, you might find some fruit vendors selling watermelons by the slice. Have you ever wondered why they do so? Selling by slice increases the affordability of watermelons for many customers and helps improve footfall at the fruit vending stall. Besides affordability, selling by slice also offers more flexibility to buyers. They can buy only as much as they want to consume.
Cut across to stock markets, investors often face this watermelon dilemma. Take this example.
Mohit has an investable corpus of Rs 1 lakh and wants to invest in at least 3-4 companies. One of them is MRF—a stock that commands a price of over Rs 1 lakh a piece. Now how do we solve this watermelon dilemma? Well, fractional shares come to the rescue. They do the job of watermelon slices.
Fractional shares allow you to buy less than a share of a company and still become a shareholder. In India, fractional shares aren’t allowed at present. Although the market regulator is keen to introduce the fractional share feature to Indian investors, the present laws will have to be amended. But the good news is that deliberations are underway.
In developed markets such as the US, you can buy stocks for as little as USD 1. Execution typically happens through a special type of trade order, which gives the broker discretion about the time and price of execution. In other words, brokers become dealers and distributors of fractional shares and the transaction price need not be disclosed to the public.
Fractional ownership is definitely a development that should be tracked closely. As and when trades in fractional shares are introduced in India, liquidity on high-value stock counters may improve and their shareholder base might become more broadbase. Keep reading this space for further updates.