Fractional shares are becoming increasingly popular among investors, offering the ability to purchase a portion of a share rather than the whole stock. This option is particularly attractive for those aiming to diversify their portfolios or invest in high-value stocks without needing a large upfront investment.
What are fractional shares?
Fractional shares allow you to invest in a portion of a stock instead of buying a whole share. For example, if a stock costs ₹10,000, you can invest just ₹1,000 and own a fraction of it. This makes investing in expensive stocks, This makes investing in expensive stocks, like Apple or Amazon, easier and more accessible, as US stocks can be purchased in fractions, starting with as little as $1. Fractional investing allows you to start investing with any amount, regardless of how expensive a single stock is. It allows small investors to diversify across countries without needing large amounts of money. Fractional shares offer an affordable way to start investing in US stocks and benefit from global growth, emerging technologies, and established market leaders.
How do fractional shares work?
Fractional shares let you invest in part of a stock, even if you can't afford a full share. Think of fractional shares like ordering a pizza. If a full pizza costs ₹500, but you're only hungry for one slice, you can pay ₹100 for that slice instead of buying the whole pizza. Similarly, fractional shares let you invest in just a part of a stock. If a stock costs $100 and you have $10 to invest, you can buy 0.1 or 1/10th of that stock. Your portion will rise and fall with the price of the full stock, but you still benefit from its growth, just like enjoying your slice of pizza.
For Example: If 1 share of Google costs $222.27 and you have $10, fractional shares allow you to buy 0.045 units of the stock. Alternatively, (looking at it differently)- if you have $50 and you want to invest in a US stock that costs $149 (Nvidia stock price as of 1st Jan 2025), you will get 0.335 units of the stock.
How does one invest in fractional shares?
One can invest in fractional shares through brokers that offer this service like INDmoney. These brokers allow you to purchase a portion of a full share instead of requiring you to buy an entire share. When you choose to invest in a fraction of a stock, the broker holds the full share in their system, while internally recording you as the owner of the fractional part.
For example, Apple stock costs $250 and if you want to invest only $25, you can buy 0.1 shares. Although the broker technically owns the full share, you are listed as owning 10% of it. Think of it like buying a piece of a cake at a bakery. You don't need to buy the whole cake to enjoy a slice. The bakery (broker) holds the entire cake, but you own and enjoy your slice (fractional units).
How to buy and sell fractional shares?
To buy fractional shares, you first select the US stock you want to invest in, say Microsoft, and decide how much money you’d like to invest. For example, if you want to invest $10, you can do so, regardless of the full price of the share at $421.50 (as on 1st Jan 2025). The broker will then calculate the fraction of the share you own based on the amount you invested. In this case it would be 10/421.50 ≈ 0.0237 units
Once you’ve bought fractional shares, you can monitor and manage them just like any other stock in your portfolio. The process of selling a fractional share is also simple. You can sell the fractional portion, and the broker will handle the transaction, just like selling a full share.
How are fractional shares different from Exchange Traded Funds (ETFs)?
Fractional shares and ETFs differ in how they provide exposure to the stock market. With fractional shares, you're purchasing a portion of an individual stock. For example, if Apple stock costs $150 and you only have $30 to invest, you can buy 0.2 of a share. On the other hand, ETFs are funds that hold a basket of multiple stocks. For instance, the S&P 500 ETF includes shares from 500 companies. When you invest in an ETF, you’re essentially investing in a mix of stocks, providing diversification in a single investment, while fractional shares focus on individual companies.
How to buy US stocks from India using INDmoney?
Step-by-Step Guide
Step 1: Open the INDmoney app and navigate to the US Stocks option in the bottom panel.
Step 2: Set up and activate your US stocks account.
Step 3: Add money to your US stocks account.
Step 4: Go to the Explore section and select the stock you want to invest in.
Step 5: Choose your purchase method:
- Buy in Shares: Enter the number of shares.
- Buy in Dollars: Enter the amount you want to invest.
Step 6: To buy fractional shares, enter an amount as low as $1. The app will calculate and show the fractional shares.
Step 7: Click "Place Buy Order" to proceed.
Step 8: Once your buy order is executed, the fractional shares will be credited to your account.
Benefits of investing in fractional shares
- Lower entry cost: Fractional shares reduce the financial barrier to entry for investing in expensive stocks. For example, if a stock like Amazon costs $3,000 per share, with fractional shares, you can invest as little as $50 or $100, allowing you to gain exposure to the stock without needing a large initial investment.
- Diversification: Fractional shares enable you to diversify your portfolio across various sectors and companies even with a small budget. Instead of putting all your money into one stock, you can distribute it across several stocks. For example, instead of investing $1,000 into just one share of a high-priced stock like Apple, you can split it into fractions and invest in a variety of stocks such as Apple, Tesla, and Microsoft.
- Access to high-price stocks: Some stocks have high prices that may seem out of reach. For instance, if Tesla's stock price is $1,000, many investors may shy away from investing in such stocks. However, fractional shares let you buy, for example, just $50 worth of Tesla stock, enabling you to invest in top-performing companies that would otherwise be unaffordable.
- Better Dollar-cost averaging: Fractional shares are useful for dollar-cost averaging, where you invest a fixed amount regularly. For example, if you set aside $200 each month, fractional shares allow you to keep investing consistently, even if stock prices vary, without worrying about buying full shares
- Compound growth potential: Even small investments in fractional shares can grow significantly over time, especially if dividends are reinvested. For example, if you own a fraction of a stock that increases in value, your fractional ownership grows with it. Furthermore, any dividends received from those stocks are proportional to your share and can be reinvested, compounding your returns.
Risks associated with investing in fractional shares
- Limited availability: Not all brokerage platforms offer fractional shares, especially for certain stocks or in some markets. This can restrict options for investors who want to diversify their portfolios.
- No voting rights: With fractional shares, investors often don’t have voting rights in company decisions. Full shareholders, on the other hand, have the power to vote on matters like mergers or board elections.
How does currency exchange impact the cost of buying fractional shares of US stocks for Indian investors?
Currency exchange plays a key role in the cost of buying fractional shares of US stocks for Indian investors. When the US Dollar strengthens against the Indian Rupee (INR), it increases the cost of purchasing US stocks, including fractional shares. When buying fractional shares of US stocks from India, currency exchange affects how much you pay in Rupee.
Let's say the exchange rate is $1 = ₹85, and you want to buy $50 worth of US stock, like Walmart. At this rate, it would cost you ₹4,250 (50 * 85). However, if the exchange rate changes to $1 = ₹87, the same $50 worth of fractional shares would now cost you ₹4,350 (50 * 87). As a result, due to the rise in the exchange rate, you would need to pay more in rupees (₹4,350 instead of ₹4,250) for the same fractional shares. This illustrates how fluctuations in the currency exchange rate can directly impact the cost of buying fractional shares for Indian investors.
Tax implications for investors buying US stocks from India
Fractional shares are treated the same as full shares when it comes to taxes. If you earn dividends from fractional shares, they are taxable just like dividends from whole shares. The amount of tax you pay depends on your income bracket and whether the dividends are qualified or non-qualified. Additionally, if you sell your fractional shares for a profit, the gain is subject to capital gains tax.
Taxes on capital gains from US stocks for Indian residents are only taxed in India and not in the US. This is because of the taxation treaty between the two countries. The India-US Double Taxation Avoidance Agreement (DTAA) helps Indian investors avoid double taxation and hence pay taxes only in India.
The rate depends on how long you’ve held the shares. Short-term capital gains (STCG) apply if you’ve held them for less than a year, and long-term capital gains (LTCG) apply if you’ve held them for more than a year. After Budget 2024, STCG on equity investments is taxed at 20%, while LTCG arising from all types of capital assets is now taxed at 12.5%, with an exemption limit of Rs 1.25 lakh per financial year.
You will need to report both the dividends and any capital gains or losses from fractional shares in your ITR, just as you would with whole shares.
Capital gains made on US stocks invested from India
| Type of Income | Tax in the US | Tax in India | Holding Period | Tax Rate in India |
| Short-Term capital Gains | N/A | Yes | <24 months | Taxed at applicable income slab rate |
| Long-Term Capital Gains | N/A | Yes | >24 months | Taxed at 12.5% plus applicable surcharge and cess |
Do fractional shares give the same access to dividends as full shares?
Fractional shares give investors the same access to dividends as full shares, but your payout is proportional to the fraction you own. For example, if a company, say Google, declares a dividend of $10 per share and you own 0.5 of a share, you would receive $5 as your dividend. Similarly, if you own 0.25 of the said share, you would receive a quarter of the dividend. This means that while you don't receive the full dividend amount, you still benefit from dividend payouts in proportion to the amount of the stock you own.
Can dividends from fractional shares be reinvested to buy more fractions?
Investors can reinvest dividends from fractional shares with something called the "Automatic Dividend Reinvestment Plans (DRIPs)", which automatically use your dividend payouts to purchase more fractional shares. This allows you to grow your investment without having to manually buy additional shares. You can continue to invest in fractions of shares, even if your dividend amount is smaller than the cost of a full share. This reinvestment option is available for US stocks and allows Indian investors to compound their holdings without needing to buy whole shares. While this is possible on INDmoney, not all platforms may offer automatic reinvestment.
How are dividends paid on US stocks taxed for Indian residents?
Dividends paid on the US stocks invested from India have a withholding tax of 25%. This means that if an Indian investor receives a dividend of $100, then there will be a withholding tax in the US of 25% on this $100. The Indian investor would get $75. However the Indian tax system allows the investor to offset the tax paid in the US against the tax they owe in India. This is a form of relief to avoid double taxation.
How it works: In India, if the investor is also subject to income tax on the dividend, they can deduct the $25 (the tax already paid in the US) from the total tax they owe on that dividend income in India. This ensures that the investor is not taxed twice on the same income, once in the U.S. and again in India.
For computing taxation the USD-INR exchange rate will be applicable from the last day of the month prior to receiving the dividend.
Is fractional investing right for you?
If you’ve been holding back from investing because of high costs or limited options, fractional investing could be the perfect solution. It removes the need to save up large sums just to buy a single share of expensive companies. Instead, you can invest whatever amount fits your budget and still own a portion of leading global companies like Nvidia, Google, Tesla, or Amazon.
Moreover, if you are looking for ways to diversify your portfolio, fractional investing makes it easier. Instead of putting all your money into one or two stocks, you can spread it across multiple companies beyond India, reducing risk and increasing your chances of steady growth.
It’s a straightforward and budget-friendly way to start investing and take control of your financial future without the pressure of large upfront costs. Whether you’re new to investing or looking to expand your portfolio, fractional investing makes the journey accessible and manageable.
Frequently Asked Questions (FAQs) about fractional shares
Can I buy fractional shares for all companies listed on US stock exchanges?
No, not all companies offer fractional shares. It depends on the brokerage platform you use. Some platforms allow fractional shares for a wide range of stocks, while others might have restrictions. Many platforms focus on only offering fractional shares for popular or high-value stocks, often those included in major indices like the S&P 500 or Nasdaq100. For example, INDmoney allows investments in major S&P 500 companies like Berkshire Hathaway, Walmart, Broadcom with as little as $1. Always review each platform's offerings to determine which stocks are available for fractional investing.
Is there a minimum amount to invest in fractional shares?
Minimum investment amounts for fractional shares vary by brokerage, often as low as $1. For instance, INDmoney allows people to invest in fractional shares starting at $1.01.
How stable is fractional share ownership during market volatility?
Fractional shares are just like full shares when it comes to price movement. They will rise or fall in value based on market conditions and are equally impacted by volatility or crashes. Your fractional ownership will reflect the same changes in value as a whole share, so the stability is the same as owning full shares.
How are fractional shares priced, and does the price stay in line with full shares?
Fractional shares are priced based on the current market value of the full share. For example, if a stock (Broadcom) is trading at $231.84 per share (as on 1st Jan 2025), and you decide to buy 0.5 of a share, you would pay $115.92 for that fraction. The price of your fractional share will move in line with the full share price. So, if the full share price rises to $250, your fractional share would also increase in value proportionally to $125. The same applies if the price of the full share falls.
Can I sell fractional shares like full shares?
Yes, you can sell fractional shares just like full shares. For example, let’s say you own 0.5 shares of Apple stock, and the current market price is $150 per share. If you decide to sell your fractional share, you would receive $75 (0.5 x $150). The process is the same as selling a full share. You simply place a sell order through your brokerage platform, and they will execute the transaction for the fraction of the share you own. This gives you the flexibility to sell any portion of your holdings, whether it’s a full share or a fractional one.
Which Income Tax Return (ITR) form to be used to report US stock investments?
To report gains and holding of fractional US stocks, Indian resident tax payers must choose the correct ITR form. If one’s income comes from salary, dividends, or capital gains (profit from selling stocks), one should form ITR-2.
However, if one has income from a business or profession, the individual Indian Tax payer must file ITR-3. Both forms include a section called Schedule FA (Foreign Assets), where one needs to disclose details of one’s US stocks, such as the number of shares you hold and their value. Filing the right form ensures you comply with Indian tax regulations.
Capital gains from selling US stocks are reported under ‘Foreign Source Income (Schedule FSI)’ in your ITR. Use the correct exchange rates to convert sale and purchase amounts to INR, and ensure all details are accurately recorded in your ITR.
Are fractional shares available for all types of US stocks (ETFs, Mutual Funds, etc.)?
Fractional shares are typically available for stocks and ETFs, but not for mutual funds. With stocks and ETFs, brokers allow you to buy a portion of a share, enabling smaller investments in individual stocks or diversified portfolios. For example, if a stock costs $500, you can buy a fraction of it for $50. However, mutual funds work differently, as they pool money from multiple investors to buy a variety of assets, and they don’t break down individual shares into fractions. Therefore, fractional investing is generally not an option with mutual funds.
How long does it take to buy or sell fractional shares?
Buying and selling fractional shares is usually a quick and straightforward process, similar to full shares. When you place an order to buy or sell fractional shares, the transaction happens almost instantly once a match is found with a buyer or seller. For example, if you decide to buy 0.5 shares of a company, as soon as there’s someone willing to sell that fraction, your order is completed, and the shares are added to your portfolio or sold.
What happens if the company whose shares I own fractionally undergoes a stock split or merger?
If the company whose shares you own fractionally undergoes a stock split or merger, your fractional shares will be adjusted accordingly. For example, if a 2-for-1 stock split occurs, you will receive double the number of fractional shares you previously owned. So, if you had 0.5 shares before the split, you would now have 1 share (0.5 x 2). Similarly, in the case of a merger, the number of fractional shares you hold will be converted based on the terms of the merger. The value of your investment will remain the same, but the number of shares may change.
Can fractional shares be inherited or transferred if something happens to me?
Yes, fractional shares of US stocks can be inherited by beneficiaries in India, but the process may involve additional steps due to the foreign nature of these assets. Depending on the brokerage, fractional shares can either be directly transferred to the beneficiary's account, or they may need to be sold, with the proceeds then passed on.
For example, on INDmoney, you can easily add the details of the person you want to transfer your shares to in the nominee section of your profile. However, it’s important to check with your specific broker for their inheritance and transfer procedures.
Can I use fractional shares for options trading or other advanced strategies?
No, fractional shares cannot be used for options trading or other advanced strategies. Options and similar strategies typically require full shares, as they are designed to be executed in whole units. Since fractional shares represent only a portion of a share, they don't meet the requirements for these types of transactions.