As I write this article, the single share of MRF trades at ₹ 71,500. However, what if you do not have the amount? You cannot buy as simple as that. Yet what if I told you that you can still buy it? Not the whole share but a tiny portion of it. Yes, you can, but not until Fractional or Bite-Sized Investing is allowed in India.
In India, you still need to invest based on the number of shares, which means you must at least buy a single stock of any company to invest in shares. However, in some countries, you can buy small portions of stocks, which means you can invest in any company as per the money you have.
So, to understand it better, let us assume you want to invest in Amazon, which currently trades at 2763 USD. However, you do not need to buy a share in order to be a shareholder. You can actually invest only 1000, 100 or even 10 USD based on your appetite. The dividend will be allocated based on the stocks you bought.
What is Fractional Investing?
Fractional or bite-sized investing allows an investor to buy as little as 1/1000000 of a share and trade in real-time in dollars. This way of investing makes investors more empowered. As an investor, you do not have to buy several stocks; instead, you can put the dollars based on your appetite.
In India, as of now, you can fractionally invest only in real estate. In real estate, fractional ownership refers to when a group of investors, whether institutional or individual, buys a Grade A commercial property in small portions. According to the blog, how fractional ownership is foraying into the Indian real estate space, published on TOI, the market of fractional ownership is expected to cross 5 billion USD in coming years.
Scope of Fractional Investing in India
The technological advancement of the 21st century has disrupted the vintage way of trading stocks. Now you can get the real-time stock price on your mobile phone and invest with a single click. This advancement is the reason for the dramatic rise in the numbers of retail investors over the past few years.
According to some financial experts, it is high time that the regulating bodies of India start thinking about fractional investing. The empowerment of the US Stock market was possible only because of the fraction investing and the power it gave to every citizen.
Fractional investing will allow a low earning individual to buy a portion of a share in the hope of earning a good return. It will eventually raise the value of the Indian Stock Market on the World Stage. However, we all know it is easier said than done. Thus, we will wait and see when that happens. Until then, read on to find out the pros and cons of fractional investing.
Pros of Fractional Investing
- You can start investing with very little money
- No barrier will hinder you from entering the market
- You can buy in any company, no matter how expensive their shares are
- It will aid you in building a diverse portfolio
- The low-income class can also enjoy the money cost averaging
Cons of Fractional Investing
- When you trade or invest fractionally, you will end up having multiple tax lots, which complicates your tax returns
- New investors tend to become reckless with their money
- Unlike whole shares, fractional shares are difficult to liquidate immediately
- As far as trading in fractional is concerned, only a few US stocks allow you to do that
- If you keep a small share, it is likely that your broker may keep your dividend
Fractional shares are unquestionably the way to go. As a result, a whole new class of retail investors may now participate in the stock market for the first time. Thanks to the growth of fintech businesses and the introduction of technology such as artificial intelligence, we are witnessing a new wave in the financial sector.