Fractional Share

What is a 'Fractional Share'

A fractional share is a share of equity that is less than one full share. Fractional shares usually come about from stock splits, dividend reinvestment plans (DRIPs) and similar corporate actions. Normally, fractional shares cannot be acquired from the market, and while they have value to the investor, they can be difficult to sell.

BREAKING DOWN 'Fractional Share'

The only way to sell fractional shares is through a major brokerage firm who can pair it with other partial shares until a whole share can be attained. If the selling stock does not have a high demand in the market place, selling the fractional shares might take longer than expected.

Shares Resulting from a Stock Split

Fractional shares can be created in a situation where a company has a 3-for-2 stock split. Suppose you have three shares of XYZ Corp. and XYZ has a 3-for-2 stock split. In this case, you should get an extra 1 1/2 shares, which would be 4 1/2 shares total. Normally, you can't buy half a share in the stock market, but in this case, you could end up with a fractional share. Most companies tend to round up to the nearest whole number of shares when fractional shares occur. In the above example, XYZ Corp. could opt to round up the 1/2 share to leave you with five shares.

Shares Resulting from a Merger or Acquisition

Another scenario where fractional shares can be acquired is from a merger or acquisition between two companies. During this scenario, the combined new common stock shares often are calculated by using a predetermined ratio. Shareholders will usually get either a fractional share of the new common stock or cash in lieu of the fractional shares.

Mutual Fund Fractional Shares

Mutual fund investors often reinvest both dividends and capital gain distributions. This often leaves the investor with fractional mutual fund shares. Unlike stocks that trade instantaneously on an exchange, mutual fund fractional shares are much easier to sell. Since mutual funds are so commonly reinvested and are sold at the end of the market day, brokerage firms have an easier time compiling fractional shares together.

Partial or Odd-Lot Bonds

It is much more uncommon when an investor ends up with an odd number of bonds. Individual bonds are generally sold in increments, such as by 10s, 20s, 25s, 50s, or 100s. Selling 11 bonds on the marketplace will often lead to a sell order not being filled or inaccurate pricing. It is often difficult to buy bonds that are not sold in increments, so it is very rare. But a common example would be when someone inherits bonds. If an investor were to inherit half of 25 bonds, that would be an odd -lot of 12 1/2 bonds. If the newly inherited bonds needed to be sold, it would need to be packaged in a lot of 10. The remaining 2 1/2 bonds would need to be packaged with other partial bonds to be sold.

RELATED TERMS
  1. Fractional Ownership

    Percentage ownership in an asset. Fractional ownership shares ...
  2. Dividend Reinvestment Plan - DRIP

    A plan offered by a corporation that allows investors to reinvest ...
  3. Stock Split

    A corporate action in which a company divides its existing shares ...
  4. Fractional Gift

    A gift that provides a fractional interest in an artwork today, ...
  5. Fully Paid Shares

    Shares issued in which no more money is required to be paid to ...
  6. Share Capital

    Funds raised by issuing shares in return for cash or other considerations. ...
Related Articles
  1. Managing Wealth

    You Can Share a Helicopter: Here’s How

    It's called fractional ownership, and if you often fly in helicopters, it could be well worth the investment.
  2. Retirement

    6 Reasons Why Dividends Should Be Reinvested

    Learn about the advantages of dividend reinvestment programs and how they may benefit longer-term investors who want to build a position in a company.
  3. Trading

    Don't Let Stock Prices Fool You

    Find out why a stock with a six-figure share price can still be a good value.
  4. Investing

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  5. Investing

    What Are Corporate Actions?

    Corporate actions are processes that change a company’s stock. Here are a few examples.
  6. Investing

    Stock Splits: A Closer Look At Its Effects

    Most trades, including short sales and options, aren't materially affected by a stock split. Still, it's important for shareholders to understand how these events impact various aspects of investing. ...
  7. Investing

    The Basics Of Outstanding Shares And The Float

    We go over different types of shares and what investors need to know about them.
  8. Investing

    Understanding Stock Splits

    We explain what they are, the thinking behind them as well as their results.
  9. Markets

    What is Fractional Reserve Banking?

    Fractional reserve banking is the banking system most countries use today.
  10. Investing

    How Does a Dividend Reinvestment Plan Work?

    A dividend reinvestment plan allows investors to use their dividends to purchase more shares of the corporation’s stock, rather than receiving payment.
RELATED FAQS
  1. What's the smallest number of shares I can buy?

    Unlike mutual funds, which can be purchased in fractional units, shares of stock cannot be divided. So, the smallest number ... Read Answer >>
  2. Does a stock dividend dilute the price per share as would a forward stock split?

    Every corporation has the same goal in mind: to maximize shareholder wealth. This goal is fulfilled in two different ways, ... Read Answer >>
  3. Can a mutual fund's shares split?

    Learn about mutual fund share splits and why they occur, including how splits and reverse splits affect share price and total ... Read Answer >>
  4. What happens to the value of a mutual fund when a stock splits?

    Find out what happens to the value of a mutual fund when a stock in its portfolio splits, including how stock splits work ... Read Answer >>
  5. How do mutual funds split?

    Learn when mutual funds split their shares and why this practice is primarily a marketing tactic aimed at encouraging investors ... Read Answer >>
  6. How and why does a stock split?

    Learn why stock splits do not occur very often for individual stocks, and understand the impact of reverse stock splits on ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center