What is a Fractional Share?
A Fractional Share is a unit of share that is less than one full share.
They arise when there are corporate actions such as stock splits, bonus issues, mergers etc. They cannot be traded (bought/sold) on the stock exchanges.
For example, as per the amalgamation scheme of Tata Steel Ltd and Tata Steel BSL Ltd:
For each equity share of Rs. 10 (each credited as fully paid-up by Tata Steel Ltd.), fifteen equity shares of Rs. 2 (each fully paid-up) can be held by an equity shareholder in TS BSL.
Therefore, for every 15 shares of Tata Steel BSL Ltd., eligible investors will receive 1 share of Tata Steel Ltd.
Mr. Lal holds 40 shares of Tata Steel BSL Ltd. Hence, he is eligible to receive 2.7 shares of Tata Steel Ltd. This can be treated as follows:
- Since the merger ratio is set as multiples of 15, he will receive 2 shares of Tata Steel Ltd., and the remaining 10 shares will be treated in a fractional manner where the eligible amount is credited to his registered bank account). OR
- The company will round-up to the nearest whole number of shares, and credit his demat account with 3 shares of Tata Steel Ltd.