Sebi keen to introduce fractional ownership in India

In a move that could bring expensive or highly priced shares within the reach of average retail investors, the Securities and Exchange Board of India (Sebi) is mulling if the concept of fractional shares can be introduced in India. 

Fractional trading refers to a mechanism wherein an investor can buy a fraction of a share. For instance, the price of one share of MRF is currently nearly ₹1.09 lakh and any investor wanting to buy a share of the tyre major has to pay over a lakh to get a share. 

If fractional ownership is allowed, then one could invest, say, ₹25,000 and get one-fourth of the share or even less if smaller fractions of the share are allowed.

In fact, there are many Indian companies whose share prices are well over Rs 20,000 apiece – Page Industries (Rs 39,612), Honeywell Automation India (Rs 39,308), Shree Cement (Rs 25,681), Abbott India (Rs 22,800) and Nestle India (Rs 21,922) among others.  

The concept of fractional ownership is already permitted in the US markets and many Indian investors have bought fractional shares of popular companies like Apple, Meta (earlier Facebook) and Alphabet, among others. 

Sebi chairperson Madhabi Puri Buch, while speaking at the Global Fintech Forum in Mumbai, said that it is something that the capital market watchdog is keen to do but it requires changes in the Sebi Act and also the Companies Act. 

“Something that we were very keen to do, we could not do. So, for instance fractional shares. Somebody came with that (and) we thought it was a good idea,” she said. 

“We would have wanted to welcome them into the innovation sandbox but it is not permitted in the Sebi Act itself. Not until we change the Act and not just the Sebi Act but also the Companies Act. But, taking the learning from that we are actually looking… in the Sebi Act is there in some way in which we can now incorporate something of this nature,” she explained. 

The Sebi chairperson was speaking in the context of the innovation sandbox facility of the regulator that allows entities to come forward with their innovations and evaluate their feasibility within the stock market ecosystem. 

To be sure, discussions related to fractional ownership are still at a nascent stage. 

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This, however, assumes significance, as fractional ownership is looked upon as a natural progression from the current permitted form of owning shares. 

Incidentally, the concept of such fractional ownership already exists in some of the other asset classes including real estate with some start-ups also offering platforms for investors to invest in the physical asset in a fractional manner. 

Even Real Estate Investment Trusts or REITs offer investors an opportunity to own a part of a larger real estate project. 

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