Investors can now trade in fractional shares – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/todays-paper/investors-can-now-trade-in-fractional-shares/article65330342.ece

Company law panel also moots issueof restricted stock units and stock appreciation rights

Investors’ dream of holding a fraction of highly-priced stocks such as MRF, Honeywell Automation and Page Industries will soon come true. The Company Law Committee, formed by the Ministry of Corporate Affairs, has recommended various measures, including the issuance of fractional shares, restricted stock units (RSUs) and stock appreciation rights (SARs), besides allowing companies to hold shareholders meetings in hybrid mode to boost ease of doing business and improve liquidity in the market.

A fractional share refers to a portion of a share less than one. It will enable retail investors to own a part of the highly-priced share at a fraction of the cost. The move to allow trade in fractional shares comes as 1.42 crore retail investors entered the market in FY21.

For instance, instead of spending close to Rs. 67,459 to buy one share of MRF — the highest priced share in India — an investor can invest just Rs. 100 or Rs. 1,000 to own a part of the company share. The committee clarified that fractional shares should involve the company’s fresh issue of such shares.

Retail participation

Anand Lakra, Partner, J Sagar Associates, said given the recent increase in retail shareholder participation in the public markets, the recommendation on fractional shares would enable retail shareholders to trade in shares which hitherto were inaccessible.

To link employees’ compensation to the company’s shares, the committee recommended the issuance of RSUs and SARs. Under RSU, an employee will be entitled to the shares at the end of the vesting period, so long as the performance parameters are met. On the other hand, SARs are deferred compensation tied to the company’s stock performance. They give employees the right to the monetary equivalent to the appreciation in the value of a specified number of shares over a fixed period. The move to hold shareholders’ meetings in a hybrid model will increase their participation and save on cost.

Vaibhav Kakkar, Partner (Corporate and Regulatory), Saraf & Partners, said the recognition of RSUs and SARs clears the ambiguity that existed under the current regulations. While SAR existed for listed companies under SEBI regulations, clarity for unlisted companies is a welcome move.

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