SEBI Approves Pilot to Test Fractional Share Trading via Innovation Sandbox

India’s Securities and Exchange Board (SEBI) has approved a pilot project to enable fractional share trading through its Innovation Sandbox. This move marks a significant shift from its position in 2021, when a similar proposal was rejected over custody concerns.

Bengaluru-based fintech startup Xaults has been invited to test fractional ownership models in SEBI’s sandbox. Over the next three to four months, Xaults will demonstrate use cases before advancing to live testing, provided SEBI formally admits it into the regulatory sandbox. Co‑founder Neeraj Singh explained that the key innovation is holding fractional shares at the depository level rather than with brokers—ensuring that ownership remains with the investor directly.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

Background: A New Regulatory Approach

SEBI first declined a fractional share proposal in 2021 that involved brokers using trustee‑based intermediaries to split full shares. That model was rejected largely due to legal constraints restricting brokers from acting as principals. Instead, the present custody framework endorses holding fractions in depositories to comply with existing regulations.

Legal experts have noted that the Companies Act and SEBI Act currently permit only full‑unit ownership. Implementing fractional shares would require statutory amendments, as recommended by the Company Law Committee in 2022, to permit dematerialised fractional holdings.

Innovation Sandbox: Testing Ground for Financial Innovation

SEBI’s Innovation Sandbox provides a controlled environment for fintech firms to pilot new ideas using anonymised, historical data from exchanges, depositories, and registrars. The framework was revised in February 2021 to expand eligibility and streamline access, allowing both regulated and non‑regulated entities to participate in two testing stages. 

Startups accepted into Stage I receive cap‑limited access to test key features over 60 days; successful applicants progress to Stage II, where resource limits are lifted. This process helps SEBI assess risk, consumer benefits, and regulatory readiness. 

Potential Impact and Industry Outlook

Fractional share ownership is already common in the U.S., allowing retail investors to buy portions of expensive stocks like Apple, Berkshire Hathaway or Nestlé. In India, high share prices of blue‑chips such as Page Industries or Shree Cement often deter small investors. Fractional ownership could democratise access, enabling investors with limited capital to own equities in affordable increments.

Xaults, which allows fractional equity ownership, aims to break barriers by allowing investors to purchase small, tradable-like tokens tied to high-value stocks. The pilot is India’s first formal test of such a model under regulatory oversight.

Conclusion

The approval of a fractional share trading pilot by SEBI is a significant turning point in the development of the Indian equities market. Fractional ownership may increase market accessibility and participation if the technology and custody model show to be reliable. However, careful policy calibration, infrastructural preparation, and legislative reforms will be necessary for wider deployment.