Is fractional investing in Indian stocks possible? What Nithin Kamath says
Premium- Nithin Kamath said fractional investing has been the biggest reason for stock market participation to go up in the US.
The dramatic rise of retail investors in Indian stock market arena over the past few years has forced stakeholders including the stock brokers and exchanges to up their game.
Interestingly, broking major Zerodha has been receveing many requests as to why is there no fractional investing in India. Fractional trading of shares refers to investing a lesser amount, say ₹10 in Reliance stock which is currently trading at ₹2,572 apiece on NSE.
Zerodha co-founder and CEO Nithin Kamath, who is known for his educational posts on stock market and investments in general, took to Twitter to share his thoughts.
Kamath said fractional investing has been the biggest reason for stock market participation to go up in the US.
Co-incidentally, Zerodha, along with a startup, has applied under SEBI regulatory sandbox to launch fractional investing same in India.
The requests made under the Sandbox were relaxations towards Clause 25.1 & 25.3 of the SEBI Master Circular for stockbrokers, with respect to the way client money and securities are currently handled by intermediaries.
Kamath shared some learnings in the process. "In the US, stocks bought by customers are held in the street name of the broker, unlike in India, where stocks are held in a customer’s beneficiary account with a depository," he said.
Brokers in the US hold securities in their name and create fractional units by creating book entries for clients, Kamath said, adding that it is a high-risk practice.
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"The fact that it isn't possible is one of the many reasons why our capital market infra and regulations are much better than the US."
How does fractional investing work?
US broker-dealers enable fractional transactions by transacting with clients on a principal basis, keeping the ownership of shares under the street name by default. This allows them to maintain ownership of the shares and create fractional units for transacting with their clients (on a principal basis) by creating book entries towards each client owning a part or multiple parts of shares.
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