In a move that could democratize access to high-value stocks, the Ministry of Corporate Affairs and the Securities and Exchange Board of India (SEBI) are contemplating allowing the issuance of fractional shares according to a Mint report.

This proposal, originally put forth by the company law committee last year, necessitates amendments to the Companies Act and could be particularly beneficial for listed entities. The detailed modalities and minimum fraction allowable are yet to be decided by the government and SEBI.

The initiative aims to enhance retail investors’ access to pricey shares like MRF Ltd and Honeywell Automation India Ltd, thereby boosting market liquidity and diversifying company ownership.

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What are Fractional Shares?

Fractional shares, essentially portions of a full share, enable investors to own high-value stocks without the hefty price tag.

For instance, instead of purchasing an entire MRF share priced over ₹1 lakh, one could invest in a fraction of it, say for ₹10,000. This concept, prevalent in countries like the US, Canada, and Japan, could be a game-changer for small investors in India, allowing them to invest in high-priced shares incrementally.

Why it Matters? The push for fractional shares comes amidst a surge in equity market participation, with demat accounts witnessing a threefold increase from FY20 to August end, indicating broader financial inclusion and evolving risk perceptions.

This development is not just a stride towards financial democratization but also a potential catalyst for market vibrancy and inclusive investment opportunities, allowing small investors to have a slice of the high-value stock cake without breaking the bank. The move is poised to empower retail investors, fostering a more inclusive and diverse investment landscape.

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