Industry eyes legal road ahead as
Xaults gets nod for fractional shares test
SEBI's approval for Xaults to trial
fractional share investing in its innovation sandbox has drawn a cautious
welcome from market participants, who see it as a long-overdue test of a model
that could make high-value shares accessible to smaller investors. However,
experts call for matching changes to the Companies Act and SEBI's own
regulations to turn it into a market-wide rollout.
The market regulator recently approved a
proposal from a startup Xaults to test fractional shares in its innovation
sandbox, marking a shift from its earlier stance, when it had objected to such
a proposal.
The approved framework proposes
recording fractional units directly with depositories such as NSDL or CDSL,
rather than being pooled with brokers as was proposed back in 2021. The
practice of fractional shares, which allows investors to own or trade portions
of a single share rather than being the whole unit, is very common in the US.
Cofounder Neeraj Singh said the company
is working on a technology showcase using data from market infrastructure
institutions, which will take another 3-5 months. We will then graduate to the
regulatory sandbox where we will demonstrate this in the live market, but in a
controlled manner, Singh said.
Simultaneously, the startup is also
gathering feedback from top brokers and the asset management industry to
suggest regulatory or policy changes to the framework.
This structure guarantees that
investors possess full legal ownership as opposed to mere economic ownership
through intermediary structures. It also improves efficiency for dealing with
dividend or bonus shares, something previous models, such as the Zerodha-StockHissa
pilot in 2021, struggled with Kunal Sharma, Founder and Managing Partner at
Taraksh Lawyers & Consultants, said.
The shift directly addresses past
regulatory objections to broker-led pooling. Alay Razvi, Managing Partner at
Accord Juris, said, The elimination of intermediary-held aggregates mitigates
concerns around conflicts of interest, custodial risk, and mismanagement of
investor holdings. It enables regulatory oversight and auditability, ensuring
investor records are integrated into the core market infrastructure.
Beyond compliance, industry players see
strong demand potential. Akshat Garg, AVP at Choice Wealth, said, It finally
opens the door for small investors to own a slice of premium stocks like MRF and
Page Industries--something previously out of reach. If executed well, this move
could unlock Rs.50,000+
crore in idle retail capital by 2030.
Ashish Nanda, Chief Digital Business
Officer at Kotak Securities, said that fractional shares also help in portfolio
diversification and would be better a big positive if introduced in Indian
capital markets. Currently if one wants to do basket investing into 4-5 shares
where price of 1 unit of each shares is say more than Rs.1,000,
one needs more than Rs.5000.
With fractional shares one can invest Rs.1000
also into such baskets.
Still, the legal foundation remains
shaky. Tushar Kumar, Advocate at the Supreme Court of India, said, The
Companies Act, 2013 in its current form does not contemplate or permit the
issuance or recognition of fractional shareholding. It is, therefore,
imperative that the enabling framework, when enacted, should be accompanied by
precise and exhaustive operational prescriptions.
Changes will be required to the
Companies Act, taxation laws, depository by-laws, regulations under the
Ministry of Corporate Affairs and SEBI to spell out ownership, transferability,
KYC, and taxation of fractional shares
www.thehindubusinessline.com,
dt. 11-08-2025