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Govt plans framework for fractional shares

NEW DELHI: Drawing upon experience in the US, the government is working on putting in place a framework for fractional shares. The plan is to democratise purchase of stocks in the country. Against the current regime where an investor has to buy at least one share of a company at the trading price, fractional shares allow an individual to put in a fixed sum of money to buy a particular stock. For instance, instead of spending close to Rs 70,000 to buy one share of, say MRF, the highest priced share in India, an investor can spend Rs 100 or Rs 1,000 to buy apart of the company’s share.
One of the reasons for stocks trading at a high value is a low float in the market. Over the last few years, brokerages such as Robinhood or Charles Schwab have started pushing fractional shares, which allowed people to invest even one cent, bringing stocks such as Amazon and Google within the reach of small investors. Amazon shares were trading at $3,025 on Monday evening, while one share of Google costs $2,590. Currently, Indian investors investing in the US markets through online platforms can invest in fractional shares.
Currently, the law does not provide for such investments in India and the ministry of corporate affairs is proposing amendments to the Companies Act to provide for fractional shares. “Issues around bonus shares, rights issues that need to be sorted. The benefit that will accrue is not clear at the moment as there are challenges,” said an executive at astock exchange. While the law will provide the framework, there are multiple steps that will be required from a regulatory standpoint. For instance, market regulator Sebi will have to allow for such a regime in the first place. Even tax authorities will have to provide for it in their statutes.
While equity investments in India have gone up in recent years, less than 5% of Indian household assets are in equities, with a large part routed via mutual funds. In a blog post, Zerodha, which had evinced interest in launching fractional shares in India, had said that brokers merely act as agents and pass on the orders to stock exchanges, with the shares held in the name of the client in demat accounts with depositories.

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