What is Fractional Shares?

Fractional shares allow investors to buy a portion of a stock rather than the entire share. This means you can invest in expensive stocks without needing a large amount of money. In India, this method of investing is becoming more popular, as it allows you to diversify your portfolio without overspending. Fractional shares can help you invest in top companies even if their stock price is out of your budget. This blog will explain how fractional shares work, their benefits, how to buy them, and the limitations you should consider.

Why are Fractional Shares Popular?

Fractional shares are becoming more popular because they offer a simple way for people to invest in expensive stocks without needing a large amount of money. With fractional shares, even if the price of a stock is high, an investor can still buy a portion of it. This means that people with smaller budgets can invest in top companies like Amazon, Tesla, or Apple, which might have been out of their reach otherwise. 

Fractional shares also simplify portfolio diversification by enabling you to invest in a variety of stocks, even with a limited budget.

Example of Fractional Shares

Let’s say you want to invest in a well-known company like Tesla, but the price of one full share is ₹60,000. For many people, this price can be too high to buy a full share. However, with fractional shares, you can invest a smaller amount, such as ₹6,000, and own a fraction of that Tesla share. In this case, you would own 0.1 (one-tenth) of a share.

Similarly, if a stock like Amazon costs ₹90,000 per share, and you only have ₹9,000 to invest, you could buy 0.1 of an Amazon share. This way, you can still be part of the growth of these big companies without needing to spend a lot of money upfront.

Fractional shares give everyone the chance to own a piece of expensive stocks, making it easier to start investing, even with a small budget.

How to Buy Fractional Shares

Buying fractional shares is easy and straightforward. Here’s how you can start:

1. Choose a Brokerage Platform: The first step is to pick a brokerage that offers fractional shares. Popular Indian platforms like Zerodha, Groww, and Upstox allow you to buy fractional shares.
2. Open a Trading Account: You need a trading account to start investing. Register on the platform, complete the necessary verification, and deposit funds into your account.
3. Search for the Stock: Once your account is ready, search for the stock you want to invest in. Make sure the company allows fractional shares, then decide how much you want to invest.
4. Place Your Order: Enter the amount you want to invest. The platform will automatically show how much of the stock you can purchase, based on the price.
5. Complete the Transaction: Finally, confirm your order and wait for the transaction to be processed. After completion, you will own a portion of the stock, and your account will be updated with your new shares.

Benefits of Fractional Shares

Fractional shares come with several benefits that make investing easier and more affordable for everyone:

1. Affordable Investment: With fractional shares, you don’t need a large sum of money to invest in expensive stocks like Apple or Google. You can buy a small portion of these high-priced stocks and start investing with as little as ₹100.
2. Diversification: Fractional shares allow you to spread your investment across different stocks. By buying small portions of various companies, you reduce the risk of losing money if one stock performs poorly. Diversifying increases your chances of making profitable investments.
3. Easy Access to High-Value Stocks: Many well-known companies have shares that are priced very high, making them out of reach for most small investors. With fractional shares, even expensive stocks become accessible, giving you the opportunity to invest in top companies that you might not afford otherwise.
4. Reinvesting Dividends: If you receive dividends from your investments, fractional shares make it easy to reinvest those earnings. You can use dividends to buy more portions of stocks, helping your investments grow over time.
5. No Minimum Purchase Requirement: Unlike traditional stocks, fractional shares don’t require you to buy whole shares. Whether you have a small or large budget, you can start investing in the stock market and build your portfolio gradually.

Also Read: Preference Shares: Definition, Types, Features, Pros and Cons

Limitations of Fractional Shares

While fractional shares offer many benefits, there are also some limitations to consider before investing:

Conclusion 

Fractional shares make investing easier, affordable, and accessible for everyone. They allow you to start with small amounts and invest in top companies. However, like all investments, fractional shares have their limitations, including possible liquidity issues and complications with dividends and taxes. Despite these drawbacks, fractional shares can be a great tool for building a diversified portfolio without needing large sums of money upfront. Whether you’re a beginner or an experienced investor, fractional shares offer an easy way to enter the stock market and grow your wealth.