Meaning of Fractional Shares?

A share is the basis of stock exchange investing. One share represents one unit of the company you own. When you purchase a portion of the wealth or capital of the company, you are considered a shareholder. You also own some shares of the company.

What are fractional shares, you ask? You can buy less than one share of the stock company stock. Fractional shares can be used to describe shares that are less than one share. These shares are also known as partial shares.

Many Indian brokerages now offer trading services for Indians who are interested in US securities through their platforms. A growing number of Americans are interested in fractional ownership.

Conditions under which you might get shares

You will likely receive only a fraction when a company merges or stock split takes place. It could be one-third or half of the stock. You should now be able understand fractional share investing. Here is an example. Here's an example. The company announced a stock split. It is a 3-for-2 split. This means you'll get three shares for every 2 shares you own. You will receive 16.5 shares if you have 11 shares.

Normal situations won't allow you to purchase fractional shares, but you might be able receive fractional shares in these cases. You may be able to have 17 shares because many companies will round off the number.

A merger or acquisition could also lead to fractional shares. Fractional shares can sometimes emerge when companies combine the common shares of two companies using a pre-determined ratio.

A dividend reinvestment program can also result in partial or fractional shares. This plan allows investors to use dividends to purchase more shares of the company. In such a situation, it is possible to buy fractional or partial shares.

What are the pros and disadvantages of fractional shares?

You can purchase fractional shares if you have limited funds or are cash-strapped. This allows you to get into the market and reap the benefits of compounding. You can start investing with very little money.

You can also diversify your portfolio by buying fractional shares or partial shares. It is possible to buy more stocks than you would otherwise.

Dollar cost averaging (or rupee cost averaging) ensures that you only invest a certain amount over a set period of time. This ensures that you don't time the market. The rupee cost average works well when used with an mutual fund or an exchange traded funds . You can use rupee cost average better with partial shares. It works well with fractional shares, too, as the concept is focused only on a constant rupee amount at fixed intervals rather than a share amount.

However, fractional investments are not possible for all stocks. You may not be able choose from as many companies you would like if you wanted to purchase full shares.

Fractional shares may have a disadvantage in that they are not as easy to trade as full shares. It is possible that partial shares may not be in high demand, so you might have to wait longer before buying or selling them.

These charges can be rounded up to the next higher number if you are required to pay regulatory fees upon sale of shares. This could also apply to fractional shares.

You should also remember that partial shares are only a fraction of full shares, and so are the dividends from owning them. If your dividend is Rs 0.50 per share, then you'll get Rs 0.25 for each half of a share.

Conclusion

You are now better prepared to start your fractional share investing journey. Fractional share investment allows you to diversify your portfolio, and start your investment journey in small steps. This gives you more flexibility in building your portfolio. However, you may not be able to trade fractional shares with all companies. This could mean that you are unable to buy shares from the company you've always wanted.

Indian investors can invest in the US capital markets, where fractional share investment is growing in popularity. They can do this via Indian platforms that permit them to.