Of US fractional investing and the lesson for India

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₹500, then one can even procure it at one-tenth the cost with fractional investing. Popular stocks in India are prohibitively expensive for small investors to buy. Fractional shares would allow for inclusive access to small investors, improve their portfolio diversification and democratize securities markets.

In the US, fractional shares regime was introduced by brokerages and fintech companies. They propagated ownership of large shares, such as those of FAANG— Facebook (now Meta), Amazon, Apple, Netflix, and Google (now Alphabet)—to retail investors and in turn found out ways and means to make that a reality by allowing fractional share trading. Thereafter, the regulators backed these brokerages after testing their preparedness and introducing a regulatory structure to invest in fractional “shares and ETFs".

In this set-up, a high value share is bought by the broker and split among interested investors in proportion to their investment. These brokerages leverage block-chain technology to maintain a ledger for each investor having fractional ownership of shares. This is called the distributed ledger technology (DLT) which helps in maintaining the records of ownership rights, voting rights, dividends, and bonus issues, while ensuring micro-level transparency and minimising cost of operations.

The brokers keep track of the investor’s identity in the ledgers, even if majority shares are registered in the brokers’ names. This has been a tried and tested mechanism in the US which has enabled investors to comfortably engage in fractional shares investing. Thus, there could be some takeaways from this for India.