Talk is mounting in financial circles that the government might soon allow companies to issue fractional shares – a move that could fundamentally change how investors access high-priced stocks. Before this potential policy shift takes hold, here is an explainer addressing some key questions

What are fractional shares?

A fractional share is part of a one full share of a stock. For instance, one MRF share costs ₹1.5 lakh, which is very pricey for most investors. You could however, pay about ₹1,500 to own one-hundredth of an MRF share, once fractional shares become a reality in Indian markets.

Why are fractional shares in news? What is the Centre proposing to do?

On November 21, the Centre notified in a Lok Sabha bulletin that amending the Companies Act, 2013 (the Act) would be one of the businesses to be taken up in the upcoming parliament session that is set to begin on December 1.

The amendments will be carried out through the passing of Corporate Laws (Amendment) Bill, 2025 (the Bill).

While the Bill hasn’t been made public, what is known is that the amendments would relate to the ease of doing business recommendations suggested by the Corporate Law Committee in its 2022 report.

In the said report, one of the key recommendations was with respect to fractional shares. To be specific, the committee suggested that the government bring enabling provisions in the Act that allow issuance, holding and transfer (trading, etc.) of fractional shares for any class(es) of companies that the centre may prescribe. It further added that its recommendation was limited to fresh issue of fractional shares and not to the existing lot.

Readers will need to wait till the government makes the Bill public, to see if it seeks to give effect to the committee’s recommendations.

Why hasn’t India had fractional shares so far?

Section 4 of the Act, which deals with memorandum of association of a company (charter of a company), prohibits subscribers to the memorandum (shareholders at the time of incorporation) from subscribing to less than one share.

Further, the model articles of association (contains by-laws) contained in the Act has a clause that allows companies to recognise a person as a shareholder, only if he or she has full and absolute rights with respect to a share.

Will fractional shares be good for investors?

Fractional shares could democratise equities, greatly benefitting small, risk-averse investors, who want only a small exposure to equities. This accessibility could enhance market depth.

Currently, in the universe of top 1,000 stocks by market cap, there are 25 stocks whose share price is over ₹10,000, 66 stocks whose share price is over ₹5,000 and 428 stocks that cost over ₹1,000. Fractional shares will put such stocks within the reach of small investors.

Further, because fractional shares allow investors to purchase based on a specific monetary amount, they enable precise execution of stock SIPs. Strategies such as sector-wise diversification too, could become a breeze with fractional shares.

What has been the experience with fractional shares in other countries?

Canada, Japan and the US are some countries which permit fractional shares.

Canada: In Canada, companies could issue scrip certificates to holders of fractional shares. However, holders of fractional shares do not get to vote or receive dividends.

Japan: It’s different in Japan though. There, fractional shares are permitted only in a few cases such as mergers and share swaps.

Here’s an example. B Limited merges with A Limited to become AB Limited. Shareholders of B will get 1 share of AB for every 5 shares held in B. X, a shareholder of B had six shares on the record date. In this case, X will get 1 share in AB and a fractional entitlement amounting to two-tenths of a share in AB ((6-5)/5). This could be the case with many shareholders of B.

In such a case, post the merger, AB is supposed to sell all such fractional entitlements/ shares to a market intermediary and receive cash in return. Adding all fractional shares will always be a whole number. So, selling in the open market shouldn’t be a problem. AB will then distribute the proceeds to shareholders such as X proportionately.

Thus, fractional shares though arising temporarily at the time of a corporate action, get eliminated eventually. In a way, this is the case in India too, as far as corporate actions are concerned (mergers, rights issue, bonus, etc.).

US: It’s a unique case with the US. Companies cannot issue fractional shares as such. However, investors can buy fractional shares offered by some brokers. Brokers buy whole shares from the exchanges and facilitate sale of fractional shares to the investors (investors can also sell fractional shares back to the broker).

In India, brokers are allowed to operate only on an agent-principal basis with their clients (investors), meaning they just facilitate trades on behalf of their clients. But in the US, such brokers operate as dealers too, selling shares directly to their clients, on a principal-to-principal basis.

Though the trades can occur seamlessly on the broker’s platform, there are two key challenges – in liquidity and voting rights.

The traded volume on these platforms would be less compared with the exchanges, hampering liquidity. Prices too may vary with that on exchanges, but this is an aspect that is regulated by the SEC to ensure that fractional orders aren’t executed at prices higher than the market. However, platforms can impose limitations such as ‘only market orders for fractional orders’, minimum order amount, limiting the investing universe to a set of stocks (only S&P 500 stocks for instance).

As far as voting is concerned, per an SEC bulletin, while some brokers may enable voting, some may not. Those brokers who enable voting, cast proxy votes on behalf of the fractional shareholders.

Will companies find their administrative burden increasing with fractional shares?

To understand this, we reached out to Giridhar G, Chief Business Officer - Corporate Registry at Kfintech, a registrar and transfer agent (RTA) for companies. In his words, “Existing infrastructure at depositories records whole shares only. Enabling fractional units will require significant system upgrades. Upgrading RTA’s and companies’ record-keeping systems to accommodate fractional holdings will involve substantial investment in technology, compliance, and cybersecurity. The cost will be substantial initially, though scalable technology may reduce long-term expenses. Clear rules on rights (voting, dividends), transferability, and dispute resolution are essential to protect investors’ interests.”

Published on November 28, 2025