India’s Move Toward Fractional Shares: What It Means for Investors and Markets

The Ministry of Corporate Affairs (MCA) is currently in consultations with the Securities and Exchange Board of India (SEBI) to explore the possibility of allowing fractional shares in India. This development, if implemented, could reshape how retail investors access equity markets and potentially democratize stock market participation in a way that aligns India with global practices.

What Are Fractional Shares?

Fractional shares represent less than one whole share of a company. For example, instead of buying one full share of a company priced at ₹20,000, an investor could purchase 0.1 shares worth ₹2,000. This model has already gained popularity worldwide as it lowers the entry barrier for investors and enables them to diversify their portfolios more effectively.

Currently, Indian regulations under SEBI and the Companies Act do not allow the issuance or ownership of fractional shares. Investors can only buy whole units of equity. The new consultations between MCA and SEBI indicate a willingness to re-examine this stance.

Why Is This Discussion Happening Now?

1. Retail Investor Boom – With millions of new demat accounts being opened post-2020, there’s growing demand for easier access to high-value stocks.
2. Global Precedent – Mature markets like the US have seen tremendous success with fractional shares, especially among millennials and first-time investors.
3. Digital Platforms & Fintech Growth – Indian fintech platforms already offer “slice-like” investment experiences in mutual funds and ETFs. Extending this to equities would be a natural progression.
4. Corporate Governance & Market Structure – Allowing fractional ownership has implications for voting rights, dividend distribution, and shareholder meetings — concerns SEBI will need to balance before implementation.

How the US and Other Countries Handle Fractional Shares

United States

• Adoption: Fractional investing became mainstream with platforms like Robinhood, Fidelity, Schwab, and Cash App.
• Impact: It drastically reduced entry barriers, letting small investors own slices of companies like Amazon, Google, or Tesla without paying thousands of dollars upfront.
• Regulatory Approach: The SEC allows brokers to hold fractional shares on behalf of clients, but they are often recorded in the broker’s name (“street name”) rather than the individual investor’s name. This means voting rights may not always flow down to the investor.
• Market Effect: Broader participation in equities, rise in retail investing, and higher liquidity.

United Kingdom

• UK brokers like Freetrade and Trading 212 offer fractional shares under FCA oversight.
• Fractional holdings work similarly to the US, with custodians or brokers managing the split shares.
• The retail adoption has been significant, especially among young investors who prefer app-based investing.

Canada & Europe

• Canadian and European regulators allow fractional investing through brokerage platforms.
• Similar to the US, these fractional shares are often held as part of an omnibus account rather than directly in the investor’s demat.

Singapore & Australia

• Singapore’s SGX and Australia’s ASX have seen limited fractional adoption compared to the US, but fintech-led models are emerging.
• Regulatory scrutiny is higher due to concerns over shareholder rights and corporate governance.

What Could Be the Impact in India?

1. Retail Market Deepening
   • Fractional shares would enable more Indians to buy into marquee stocks like MRF, Page Industries, or high-priced tech companies.
   • This could boost financial inclusion and retail participation in equity markets.
2. Increased Liquidity & Diversification
   • More investors could spread their investments across multiple sectors and companies, strengthening market resilience.
3. Corporate Governance Concerns
   • SEBI must address how voting rights, dividends, and disclosures will work for fractional shareholders.
   • A likely model is allowing brokers or custodians to aggregate fractional holdings and represent them in shareholder meetings.
4. Fintech Ecosystem Growth
   • Indian brokers and fintech platforms would get new revenue streams by offering fractional investing.
   • Could accelerate innovation in wealth management apps.
5. Regulatory & Legal Alignment
   • Amendments to both the Companies Act and SEBI regulations will be needed.
   • The Company Law Committee has already recommended such changes, signaling regulatory intent.

Challenges Ahead

• Legal Complexity – Current law doesn’t recognize fractional ownership, so both MCA and SEBI will need to rewrite certain provisions.
• Operational Risks – Ensuring accuracy in fractional dividend distribution and reconciliation across brokers.
• Investor Protection – Guarding against mis-selling or over-promotion by fintech platforms.
• Market Stability – Monitoring whether increased retail access leads to speculative bubbles.

India’s consideration of fractional shares marks a pivotal moment in its financial market evolution. If implemented thoughtfully, it could democratize equity investing, align India with global practices, and strengthen financial inclusion. However, regulators will need to carefully balance investor access with governance and legal safeguards.

As the MCA and SEBI deliberate, investors and industry participants should closely watch how this unfolds — because fractional shares could redefine the way Indians invest in equities, much like they did in the US.