Have you ever shared expensive electronic gadgets with your siblings or friends when you were younger? Say, a gaming console in high school or a laptop in college. If you all chipped in money and bought that gadget together then all of you were partial owners of it. Each of you had the right to use it and each of you had the responsibility to take care of it.
Such kind of partial or fractional ownership of an asset that is too expensive for one person to buy wholly exists in the world of investing too. Investors opt for fractional ownership for a range of asset classes including shares, real estate, and alternative investments. The interesting part about fractional ownership of assets is that investors do not need to know each other or make the investments together. You can, as an individual investor, choose to buy only a part of the asset for a fraction of its total price.
What is fractional ownership of shares?
Fractional ownership of shares applies the logic of collaborative consumption. The cost of a share is split between shareholders allowing individual shareholders to invest in expensive shares and mutually enjoy the benefits of ownership rights, high returns, and reduced rates.
Investors opt for fractional ownership of shares when they want to diversify their portfolios and invest in global markets. When investing in global markets, such as the U.S., the cost of shares is dramatically higher than that of Indian shares. For instance, the cost of a single share of companies like Amazon is over $3000. Conversely, some of the best-performing stocks in India such as Tata Motors and JSW Steel cost less than $20. Even the most expensive stock in India, MRF at about $1000, is less than half of the cost of U.S. stocks like Alphabet Inc.
While this high cost of stocks may be a barrier to entry for most Indian investors, opting for fractional ownership of shares allows for including these blue-chip U.S. stocks in your investment portfolio. You might be wondering, ‘Why should I even invest in global markets to begin with?’ The short answer: Investing in global stocks hedges risk and makes your portfolio stronger. Let’s elaborate on this to give you a better picture.
Why invest in global markets?
The biggest reason to invest in global markets like the U.S. is to diversify and get exposure to other economies. For instance, when the pandemic hit, the stocks in India suffered a loss of over Rs 5.5 lakh crore in just a few weeks. But not all industries and markets were impacted similarly.
The tech industry emerged stronger in the face of the pandemic and investors of tech stocks enjoyed returns of ~40%. Most of these tech giants such as Zoom, Netflix, and Amazon, however, are not listed on the Indian stock markets.
Another advantage of investing in global markets is benefiting from the depreciation of the currency. The exchange rates keep fluctuating and if the Rupee has depreciated against USD at the time of redeeming your investments as compared to when you had invested, you’re going to get even higher returns owing to the conversion value.
Investing in fractional shares
When you choose fractional ownership of shares, you don’t need to wait until you have a massive chunk of capital, to simply buy one whole share in the global markets. You can start by investing what you have and begin investing in stocks of companies listed on international stock markets such as the Nasdaq.
There are brokerage firms that split up whole shares so that they can sell fractional shares to investors internationally. As for the dividend, it is split according to the ownership ratio. So, for instance, if you own 1/4th of a share, the dividend too is split in the same ratio.
Even if you do have $4000 to invest, fractional ownership of shares allows you to invest in multiple stocks instead of using all your money just for one stock. So, you can choose to invest in ten different companies with the same amount of money. Since fractional ownership allows you to achieve your desired asset allocation in a quicker and affordable manner, it should be considered.
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