The Securities and Exchange Board of India (SEBI) has made a significant move that could reshape India’s investing landscape. For the first time, SEBI has allowed fractional shares to be tested in its innovation sandbox, enabling startups to experiment with models that could bring Indian investors closer to global investing trends.
This is a sharp shift from 2021, when SEBI rejected proposals from firms like Zerodha and StockHissa due to concerns over custody, compliance, and regulatory feasibility. Now, with a custody-first model being tested, the pathway for fractionalization in India looks much clearer.
What are Fractional Shares?
Fractional shares allow investors to buy a portion of a single stock instead of purchasing the full share. For example, if one share of MRF is trading at ₹1 lakh, fractionalization could let a retail investor own just 1% of that share (₹1,000 worth).
Already popular in the US through platforms like Robinhood, Fidelity, Schwab, and Cash App, fractional ownership has opened stock markets to millions of new participants who otherwise couldn’t afford high-value shares.
SEBI’s Sandbox Move
Earlier this month, Bengaluru-based Xaults joined SEBI’s innovation sandbox to pilot fractional shares. The company’s approach addresses SEBI’s earlier concerns:
- Custody-first model → Fractions will be held at the depository level, not at the broker.
- User ownership intact → Investors remain the direct owners in their demat accounts.
- Smart contract settlement → Plans to collaborate with clearing corporations to test blockchain-based settlements.
This setup reduces risks of mismanagement at broker level and aligns better with SEBI’s regulations.
If successful, SEBI may move the project to its regulatory sandbox, followed by policy-level changes through the Ministry of Corporate Affairs (MCA). But this won’t be easy—both the Companies Act, 2013 and Income Tax Act will need amendments to legally recognize fractional issuance and to clarify taxation.
Lessons from the US & Other Markets
The US has led the way in democratizing stock markets through fractionalization:
- Robinhood launched fractional shares in 2019, dramatically boosting participation among Gen Z and millennial investors.
- Fidelity and Charles Schwab followed with their “Stock Slices” feature, allowing as little as $1 per investment.
- In Europe, Trade Republic and Revolut have adopted fractional models, with regulations increasingly supporting them.
The impact has been clear: higher retail participation, increased financial literacy, and stronger engagement with capital markets.
India, by comparison, still restricts investors to whole shares. This limits access to premium companies like MRF, Page Industries, or global giants listed abroad. SEBI’s move could finally bridge that gap.
Challenges Ahead
For India to implement fractional shares seamlessly, multiple reforms are needed:
- Amending the Companies Act to allow fractionalized ownership.
- Custody and depository readiness to manage fractions without liquidity or settlement issues.
- Corporate actions like dividends, rights issues, and bonus shares must be distributed proportionally.
- Taxation clarity to avoid confusion on capital gains for fractional transactions.
“Fractional shares represent more than just accessibility—they symbolize a cultural shift in wealth-building. At CakeOS, we believe investing should feel like owning a piece of a story, not just a stock. When barriers of affordability break, participation broadens. India’s move toward fractionalization could open markets to millions of first-time investors, much like how UPI democratized digital payments. The key will be designing it with trust, transparency, and technology at its core.”
Gaurav Mehta, Founder of CakeOS
SEBI’s decision to test fractionalization is a watershed moment. If India can align regulators, depositories, and lawmakers, fractional shares could democratize equity participation just as UPI democratized payments.
The coming months with Xaults’ sandbox trials will be critical—setting the foundation for how Indian investors experience equity markets in the next decade.