Govt, Sebi in favour of fractional shares

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₹109,675.40, ₹40,830.20, and ₹39,090.85, respectively, on the BSE on Tuesday. A steep price puts many such stocks beyond the reach of a large number of small investors. However, the committee’s proposal to allow fractional shares was specific to the context of issuing fresh capital.

“At present, small investors may not be in a position to invest in high-priced shares in one go. Allowing fractional shares will surely benefit small investors and boost the market to some extent. The minimum fraction allowable has to be decided by the government and Sebi," said Amarjit Chopra, a member of the company law committee that made the recommendation.

Chopra is also a former president of the Institute of Chartered Accountants of India. The panel had said that markets like Canada, Japan and the US have provisions allowing issuance, holding and trading in fractional shares. During corporate transactions, fractional entitlements to shares do get created, but the investors get only their sale proceeds.

Currently, the Companies Act prohibits the issue of such shares and insists that new companies have to specify in their charter the share capital and the number of shares subscribed, “which shall not be less than one." The move comes in the wake of an increase in equity market participation by investors. Demat accounts needed for managing investments in electronic form have seen a sharp jump from 40 million in FY20 to 128.3 million at the end of August, Sebi data showed, signifying wider market participation, financial inclusion and changing risk perception about financial assets. In FY22 and FY23, over 59 million demat accounts were added."Exciting news! Mint is now on WhatsApp Channels