Buy Fractional Shares

If you’ve ever wanted to invest in a particular company’s stock, but didn’t have enough money to buy even one share, or you want to effectively diversify your funds, investing in fractional shares might be an affordable way to get started. Fractional shares allow investors to buy a portion, or fraction, of a stock based on a dollar amount that the investor can afford–not based on a particular number of shares.

Have you encountered investors who buy fractional shares in the financial market? Are you familiar with the concept? Fractional shares are a great way to invest in a company if you do not have money to buy even a single share. They can also be an effective way to diversify your portfolio. Buying fractional shares is a great way for people to get started in the financial market.

In this article, we will discuss how to buy fractional shares, the drawbacks you can experience when doing so, and some important factors you should remember before committing to buying them.

The most fundamental step if you want to buy fractional shares is to get started with an investment account. This can be opened through a robo-advisor or an online broker. The major distinction between both methods is that while one would enable you to fully control where your fractional share investment would go, the other will be more automated, requiring less monitoring. Let us take a more detailed look at the steps to buy fractional shares:

• Firstly, it is important to research and be sure of which fractional shares you like. This will also help you pick a relevant broker as fractional shares offered are different among brokers.
• The second step is to open an account with a company that offers fractional share trading services. The specifics of services can also differ among brokerages, like
  • The exact stocks that are available for purchase as fractional shares
  • Execution and settlement of trades
  • Trading and transaction fee
• Then, you have to deposit funds into the account. This can be done electronically, but the settlement may take varying amounts of time, depending on the broker, and you might not be able to use the funds immediately.
• The final step is to invest the funds and continuously track your investments. Numerous online accounts and portals make investment tracking easy, as you can view all your investments in a single dashboard. Still, make sure to explore the platform thoroughly and use all the services and tools offered, such as rebalancing, stock alerts, etc.

Fractional shares offer numerous benefits to investors and help bring more and more people under the ambit of the financial market. However, they are not without their fair share of drawbacks, which can be important to learn about. Some primary drawbacks of fractional shares include:

Limited choice of stocks

Not all publicly traded stocks have options of buying fractional shares. There is a separate list of stocks that allow fractional share trading with every broker, which you have to explore.

Issues in fractional share transfer

Fractional shares often do not allow for transfers between brokers, and your position may need to be liquidated if you want to shift to a different broker.

No option for proxy voting

While this can vary from company to company, it is important that you research rigorously to understand a company’s policies regarding fractional shares and proxy voting before you buy fractional shares.

Additional fees

Certain brokers may charge additional fees for investing in fractional shares. This can reduce investors' profits, especially since the investment amounts in fractional shares are already low.

Execution of trades could be delayed

It is also important to note the amount of time that it would take for your broker to execute the trades you will make in fractional shares. This can have a direct bearing on your returns as stock prices can vary significantly in the course of a single trading day. Brokerage firms may also charge differently according to the settlement times and priorities.

Complicated tax returns

Fractional shares can complicate tax returns due to multiple tax lots from frequent purchases and dividend reinvestments, making it hard to track at tax time.

Despite their drawbacks, fractional shares are a good option for investors to start investing and hedge risks in their portfolios. Let us take a look at some of the factors that you must keep in mind if you want to buy fractional shares:

Selecting stocks and ETFs

The stocks available for investment as fractional shares are limited. This also differs among brokerages and thus it is vital to know the stocks or ETFs you want to invest in. Religiously check and verify the fractional share and ETF list of a broker before deciding to work with them.

Commissions and fees

There is a wide variety of firms in the market. While some charge a fee, others have no commissions. As a smart investor, you should know the charges clearly before signing up.

Account minimum

Do check if your broker has an account minimum that needs to be maintained.

Research and analysis

Brokerage firms provide a wide ambit of research and analysis to their clients. These assessments help investors decide which stocks may be worth buying.

Informative material

While it is good to have advanced knowledge, market basics like what is SEBI, how should you invest to achieve your financial goals, etc. are also quite important. Brokerages often provide educational and informative content that is helpful for investors and will help you attain your goals.

Investing in fractional shares is an excellent way for investors with limited funds to start investing and diversify their portfolios. However, it’s essential to understand the process, be aware of the potential drawbacks, and consider key factors before committing to buy fractional shares.