A fractional share is a portion of a stock that is less than one full share and is typically a result of corporate actions such as stock splits or bonus shares. You cannot trade fractional shares in the market and cannot buy or sell them.
How do fractional shares arise?
Stock splits and bonus shares
If you hold 9 shares of ABC Ltd and the company declares a 3-for-2 stock split, your holding changes as follows:
| Step | Shares |
| Shares you hold | 9 |
| Extra shares you are eligible for (3-for-2) | 4.5 |
| Total after the split | 13.5 |
Company mergers
Fractional shares also arise when a company merges with another firm, and the share swap ratio is unequal to the number of shares held by shareholders. In such cases, you may receive fractional shares of the new company.
Suppose you hold 29 shares of ABC Ltd, which has recently merged with another company named XYZ Ltd. XYZ Ltd offers one stock for every five stocks of ABC Ltd held (1:5).
| Step | Calculation | Result |
| ABC shares you hold |
|
29 |
| Whole XYZ shares you receive | 5*5 = 25 | 5 shares of XYZ |
| ABC shares left over | 29 - 25 | 4 shares of ABC |
| Fractional share you are entitled to | 4 shares / 5 | 0.8 of an XYZ share |
Can fractional shares be sold?
You cannot sell fractional shares in the market. Instead:
- The company appoints a trustee to buy back the fractional shares from you.
- The proceeds are credited to your primary bank account.