The Securities and Exchange Board of India (SEBI) is working on introducing the concept of fractional shares. This approach could soon allow individuals to invest in shares of high-value companies, making the stock market more accessible than ever before.

Imagine owning a fraction of a company’s stock, such as MRF, which currently trades at Rs 1,10,000 per share. Previously, this might have been out of reach for many with limited capital, but fractional shares could change the game. Investors with as little as Rs 10,000 to spare could potentially become stakeholders in MRF, albeit in smaller quantities, like one-tenth of a share.

Fractional shares basically represent a fraction of a full share of a company. These fractions often arise from corporate actions such as stock splits, bonus shares, mergers, acquisitions, or dividend reinvestment plans. Currently, these fractional shares remain non-tradable, leaving investors unable to buy or sell them. Once regulations are formed, investors will be able to buy or sell these fractional shares.

The dilemma lies in the Companies Act, which prohibits the purchase, sale, or trading of fractional shares. According to the Act, subscribers to the Memorandum of Association (MoA) must agree to subscribe to a minimum of one full share. However, the good news is that SEBI is actively collaborating with the Ministry of Corporate Affairs to amend this Act, opening the doors for individual investors to own fractional shares of their favourite companies.

Intellex Strategic Consulting Private Limited

www.economiclawpractice.com, www.intellexconsulting.com, www.intellexCFO.com, www.growfranchisees.com