Things to Know Before Buying Fractional Shares

The major goal of fractional shares is to allow investors to purchase a stock based on a dollar amount they choose rather than the price of a complete share. This may be predominantly beneficial for investors who are have restricted capital but want to build an extremely diversified portfolio.

Why it is good to buy fractional shares?

To invest in a pricey stock that are beyond your spending limits

Fractional shares can help investors create the portfolio they want but couldn't earlier afford. For example, if a stock trades for INR 2000 per share - which isn't overlooked- you'd need a minimum INR 200 just to include it in your portfolio. Want to buy more than one share? You'll have to buy in additions of INR 2,000 (INR 4,000 for two shares, INR 8,000 for three shares and so on). If you don't have that much in your kitty, you'll need to get another investment.

But there is a different scenario with fractional shares. Fractional trading allows you to buy the amount of stock you can actually afford, whether that's INR 10, INR 50, INR 500, or INR 4,000.

To build a dynamic portfolio

Some of the best-performing stocks these days are also some of the most costly. Creating a well-diversified portfolio comprised of just a few shares of each could need tens of thousands of dollars in truthful capital.

For example, you had INR 5,000 to invest with one of the top 10 stock brokers in India. In the case of fractional shares, you can dedicate a specific amount of your money toward each firm you want to invest in. If that's 10%, you could choose to invest INR 500 worth of stock in 10 separate companies, irrespective of their share price. This helps you create a much more diversified portfolio than if you'd invested a lump sum amount in a single stock.

To choose from a wide range of investment options

Investors with a limited budget were often confined to buying penny stocks earlier. These equities are generally companies you've never heard of that carry extreme risk and often bad investments. But due to the introduction of fractional shares, investors can buy a piece of any publicly traded company, including some of the popular stocks in India, which trade for thousands of rupees a share.

Because there's no stock that is beyond reach with fractional shares, you can make investment decisions not based on the amount of available funds rather based on which firms you believe have the great chance of performing well over the long term time horizon.

In recent times, the popularity of fractional shares has increased multifold with more and more number of small investors prefer this strategy to chase their dream of having a diversified portfolio and buy high-priced stocks.

Here are some commonly asked questions about fractional shares.

Can I get a dividend with fractional shares?

Do fractional shares pay dividends?

If one buys fractional shares of a stock that pays dividends, he will get a payment based on the number of owned shares, similar to any other investor. If shareholders get an INR 10 dividend for each share they own and you own a half share, you receive INR 5.

Is it possible to sell fractional shares?

Yes, they can be sold just like any other shares of stock one has. If you bought a half share through your brokerage and you want to sell your portion, you can easily place a sell order with the same broker and cash out your assets.

Is investing through fractional shares a great idea?

Yes, fractional shares provide small investors an opportunity to trade in high-value stock without worrying about their high price.