Things to know before buying fractional shares of US stocks

The US stock market is home to some of the world’s most successful companies, from tech giants like Apple and Google to blue-chip firms like Coca-Cola and Johnson & Johnson. Many Indian investors want to invest in these stocks but find the high share prices a barrier. That’s where fractional shares come in.

Fractional shares allow you to own a piece of a stock rather than a full share, making it easier to invest in expensive stocks without needing thousands of dollars. This has opened the door for small and medium-sized investors who want exposure to the US market without a huge upfront investment.

Whether you're new to investing or looking to diversify your portfolio, understanding fractional shares is key to making smart investment decisions. This guide will walk you through everything you need to know before buying fractional shares of US stocks, including how they work, their benefits, tax implications, and potential risks.

What are fractional shares?

Definition and concept

A fractional share is exactly what it sounds like—a portion of a full stock. Instead of buying one full share of a company, you can buy a fraction of it based on the amount of money you want to invest.

For example, if Amazon’s stock is trading at $3,000 per share, and you only have $300 to invest, you can buy 0.1 shares instead of waiting to save enough to buy a full share.

This concept is particularly useful for high-priced stocks, making investing more accessible for everyone.

Rise of fractional investing in the US

Fractional investing has grown rapidly in recent years, thanks to the rise of commission-free brokers like Robinhood, Charles Schwab, and Fidelity. These platforms have made it possible for everyday investors to own shares of big companies without needing large amounts of capital.

For Indian investors, platforms like Vested Finance, INDMoney, and Stockal have simplified the process of investing in US fractional shares, making global markets more accessible than ever before.

Benefits of fractional shares for indian investors

Fractional investing offers several advantages, especially for investors just starting or those with limited capital.

1. Access to high-priced US stocks

Many of the world’s biggest companies have high share prices. Without fractional shares, owning even a single share of Amazon, Tesla, or Google could be out of reach for many investors.

With fractional investing, Indian investors can buy a small portion of these stocks and start building their portfolios without needing lakhs of rupees.

2. Portfolio diversification with limited capital

Investing in a single stock is risky. If that company performs poorly, your entire investment could be affected.

Fractional shares allow you to spread your investment across multiple stocks, reducing risk and ensuring better stability. For example, instead of buying just one full share of a single company, you can invest small amounts in multiple companies across different sectors like technology, healthcare, and finance.

3. Dollar-based investing flexibility

Unlike traditional investing, where you buy a fixed number of shares, fractional investing allows you to invest a fixed amount in USD.

For example, instead of saying, "I want to buy 2 shares of Apple," you can say, "I want to invest $100 in Apple." This flexibility makes it easier to plan investments and manage risks effectively.

How fractional shares work in US markets

1. Creation of fractional shares

Fractional shares are not directly issued by companies. Instead, they are created by brokerage firms, which split whole shares into smaller portions and allow investors to purchase them.

This means that when you buy a fractional share, the broker holds the full share on your behalf and allocates a portion of it to you.

2. Pricing and execution

The price of a fractional share is calculated based on the stock's market value at the time of purchase.

For example, if Google’s stock is trading at $2,500 per share, and you buy $250 worth of Google stock, you will receive 0.1 shares.

Most brokers execute fractional orders just like full shares, but some may only process fractional trades during specific hours of the day.

Popular US stocks available for fractional investing

Many US stocks are available for fractional investing, including:

1. Tech giants

• Apple (AAPL) – A leader in smartphones, software, and cloud services.
• Amazon (AMZN) – The world’s largest e-commerce platform.
• Google (GOOGL) – A global powerhouse in search and digital advertising.
• Microsoft (MSFT) – A major player in software, AI, and cloud computing.
• Tesla (TSLA) – The most well-known electric vehicle manufacturer.

2. Blue-Chip companies

• Coca-Cola (KO) – A well-established brand in the beverage industry.
• Johnson & Johnson (JNJ) – A leader in pharmaceuticals and healthcare.
• Procter & Gamble (PG) – A global consumer goods giant.
• Berkshire Hathaway (BRK.B) – The investment firm led by Warren Buffett.
• Visa (V) – A dominant force in digital payments.

Choosing a broker for US fractional shares

Features to look for

• Low trading fees – High fees can reduce profits, so opt for brokers with low or no commissions.
• Regulatory compliance – Ensure the broker is registered with US financial regulators like the SEC (Securities and exchange Commission).
• User-Friendly Platform – A good brokerage should have a simple and easy-to-use interface.
• Easy Fund Transfers – Look for brokers that allow smooth transfers from INR to USD for investing.

Comparison of popular platforms

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Fractional shares have made investing in the US stock market more accessible than ever for Indian investors. Whether you want to invest in high-priced stocks like Tesla and Amazon, diversify your portfolio, or start small and scale up over time, fractional investing is a powerful tool.

However, investors should carefully choose a broker, understand tax implications, and manage risks wisely before jumping in. With the right strategy, fractional shares can help Indian investors participate in the growth of the world's biggest companies without needing a huge initial investment.

Are you planning to invest in US fractional shares? Let us know your thoughts in the comments below!