The Securities and Exchange Board of India (SEBI) has officially approved a pilot for fractional share trading under its innovation sandbox. Bengaluru-based startup Xaults will conduct test cases over the next three to four months, signaling a potential transformation in retail investment access in India
What Are Fractional Shares?
Fractional shares enable investors to buy or trade portions of a single equity—rather than full units—making high-priced stocks more affordable. This model is widely used in the U.S., but previously not permitted in India due to regulatory and custody challenges
How the Pilot Will Work
- Custody Framework: Fractional shares will be held directly at the depository level, not by brokers, ensuring legal clarity on ownership and custody
- Testing Phase: Xaults will run pilot demonstrations for three to four months. Live trading at scale will begin only if the initiative advances into SEBI’s regulatory sandbox
- Settlement Model: The startup intends to partner with clearing corporations and test smart contract-based settlement mechanics for fractional trades
Why SEBI’s Move Matters
- New Access for Retail Investors: Enables investors with limited capital to own high-value stocks in smaller denominations.
- A Shift in Regulatory Approach: SEBI had previously rejected a similar proposal in 2021 due to concerns over custody models. The latest approval indicates a more adaptive regulatory mindset
Regulatory and Legal Hurdles Ahead
- Update in Legal Framework: Current statutes like the Companies Act, 2013 allow only whole-share ownership. Reforms will be needed to permit fractional share listings in dematerialised form, as recommended by the Company Law Committee in 2022
- Cross-Agency Coordination: Implementing fractional share trading will require changes across SEBI rules, corporate law, tax regulations, and compliance standards like KYC and AML systems
- Challenges in Corporate Actions and Taxation: Managing events like bonus/share splits and determining tax treatment for fractional ownership structures remain unresolved practical issues
Retail Community Reactions
In forums like Reddit, users have welcomed the move as a long-awaited breakthrough. One user noted:
“It still needs changes in the Companies Act and some tax clarity, but honestly, this is the furthest we’ve come.”
Another added:
“Makes it easier for school kids to invest their pocket money.”
What’s Next?
- If the pilot succeeds, SEBI may admit Xaults to the regulatory sandbox, clearing the way for live fractional trading.
- Legal amendments and cross-institutional coordination with entities like the Ministry of Corporate Affairs and tax authorities will be essential.
- The long-term outcome could democratise access to equity markets for smaller investors and bring India in line with global investment models.
