Welcome back to our series that covers differences between the US stock market and the Indian stock market. Last time we talked about the difference between the custodian model in the US versus the depository model in India. Today we will talk about fractional shares.

One of the major differences between investing in India and investing in the US is the ability to buy slices of shares or fractional shares. 

These fractional shares allow you to invest in less than one share. For example, if you look at the share price of Amazon today it’s around $3,300. Now with fractional investing, you can start investing in Amazon with as little as $1. 

Certain brokers allow you to invest up to 8 decimals of fractional shares! And what’s even cooler is that you get fractional dividends as well as fractional voting rights!

The advantages of having fractional investing is basically that you can start small, so you can create your portfolio over time and you can create your portfolio as per the exact allocations based on your strategy.

Now how does fractional investing work?

There are multiple ways in which brokers can offer fractional investing. One way is that the broker buys the whole share and stores it in their inventory. And then whenever it receives an order it fills that order from its inventory.

Lastly, the US brokers are able to offer fractional investing because the regulator SEC has allowed sub-division of securities, whereas in India, brokers are unable to offer this because the SEBI has not allowed any such subdivision. 

So that was all about fractional investing  – stay tuned for IPO investing for retail investors as the next part of this series.