Complete Guide To Investing In Fractional Shares In Singapore

How Does Investing In Fractional Shares Work?

Instead of buying a whole share, we only buy a fraction of it. How much we buy will be based on the amount we want to invest rather than an actual fraction of a share or ETF that we want to invest in.

Let’s take one of the most popular shares in the world as an example: Nvidia. Nvidia shares are trading at around US$140 today. If we want to buy one Nvidia share, we have to pay US$140 (and other relevant brokerage commission and transaction costs).

With fractional shares, we can buy half as Nvidia share at US$70 or even US$10 worth of Nvidia shares.

Read Also: Investing With Interactive Brokers (IBKR): Here’s What Investors In Singapore Need To Know

What’s The Benefit Of Investing In Fractional Shares?

#1 Gain Only The Exposure You Want

The main benefit of investing in fractional shares is that we don’t have to buy an entire share to gain the exposure to companies that we want.

For example, we may want to regularly invest in Microsoft shares – and ideally allocate US$100 to it every month. Currently, we have to wait over 4 months before we can afford to buy 1 Microsoft share at US$416. With fractional shares investing, we can gain instant access to a fraction of Microsoft shares for US$100 each month – without having to wait till we can afford a full share.

Source: Google Finance

#2 Build And Diversify Your Own Mini-ETF Portfolio

As a concept, fractional shares are not new – even for retail investors like us. If we’ve ever invested in an ETF or unit trust, we would have gained exposure to several hundred stocks for as little as a few hundred dollars. This means that our exposure to each stock within the ETF will be fractional.

With ETFs, we are given the portfolio that we can invest in. Fractional shares give individual retail investors the flexibility to build our own mini-ETF portfolios and invest in as many or as few stocks as we want. For example, we don’t have to invest in the entire S&P 500 index, but just the Magnificent 7 or even just the top 10 biggest companies listed in the US.

Imagine we are starting out with US$1,000 and want to invest in only the 10 biggest companies on the U.S. stock market:

In total, we would still need about US$3,842. While this is not an unreachable amount, the point is that investing in fractional shares not only allows us to start smaller, but also enables us to build our own mini-portfolio of the top 10 market cap companies in the US. We can invest US$100 each month in the companies regularly – that is investing just US$10 in each of the 10 companies.

In both instances – investing in ETFs or building our own mini-portfolios – we are able to gain valuable exposure to companies that we may never have if we invested in them individually. The brokerage cost of investing in an ETF would have been very affordable. Now, brokerages that offer fractional shares are also offering affordable brokerage costs to go along.

#3 No Difference In Returns That You Earn

Despite investing in a fraction of a share, we get to enjoy the same returns relative to our position size. If a stock goes up by a certain percentage, it does not matter that we own a fractional amount of it, our position also increases by the same percentage.

For example, Meta (or Facebook) has risen close to 50% in the last 1-year period. If we invested US$10 in Meta last year, it would be worth close to US$14.85 today. This is the same return we would get if we owned 1 Meta share, which rose from US$486 to US$695 today.

The same goes for corporate actions. If the company pays a dividend or issues more shares (i.e. goes through company splits down the line), we are also entitled to all of it.

However, do note that we should also read the terms and conditions. For example, Interactive Brokers states that the dividend rate is 75% – which means we only get 75% of the dividends we are entitled to. Other brokers may have their own T&Cs.

In addition, we may not have our voting rights or be able to receive full shareholder communications provided by the companies that we invest in.

#4 Dollar Cost Average Into The Markets

For many retail investors, we may only be setting aside a few hundred dollars each month towards investing. If we have positions in several individual stocks, it will be very difficult to invest in the stocks at regular intervals and evenly distributed across our investments.

With fractional shares, we can easily dollar cost average into our positions each month.

How Much Is The Brokerage Commissions When You Invest In Fractional Shares?

As mentioned, Interactive Brokers, moomoo, Syfe Trade, Tiger Brokers and Webull are the main brokerages that offer fractional shares trading in Singapore. Hence, we can take reference to their brokerage commission costs.

For example, Interactive Brokers (IBKR) charges the same low brokerage commission whether we are investing in full shares or fractional shares, with a minimum of US$1 per trade (and a maximum of 1% per trade)

Let’s say we wish to invest $100 in Alphabet (Google) shares. We will buy about 0.53 Alphabet (Google) shares. The US$1 minimum brokerage charge will translate to about 1% of the amount we invest.

Other brokerages may have similar costs, so be sure to take note of it. Also note that these are just brokerage costs, and there are other cost components that may factor into your decisions as well.

Read Also: Singapore Online Stock Brokerage Account Fees Comparison

What Are The Downsides To Owning Fractional Shares?

As mentioned, only a few brokerages offer fractional shares trading in Singapore. If we want to embark on fractional share trading, we need to open an account with either Interactive Brokers, moomoo, Syfe Trade, Tiger Brokers or Webull. While this may be an extra step for some investors, a brokerage that allows us to invest in new and innovative ways could be worth our time and effort.

Even if a brokerage offers fractional shares, not all shares may be available. As mentioned, while Interactive Brokers (IBKR) offers U.S., Canadian and European markets, moomoo, Syfe Trade, Tiger Brokers and Webull only offer fractional shares for U.S. stocks. Note that even within the markets that are available, there may be some counters that are not offered for fractional share trading.

The fractional shares that we buy will be stored in our custodian accounts. On its own, this is not so different from how we would be storing our other U.S., Canadia or European investments. However, the one drawback with fractional shares investing is that we typically cannot easily switch out from existing brokers. There may be brokers that do not allow transferring fractional shares in or out of our brokerage accounts with them.

We’ve also highlighted that brokerage commissions can be about 1% of our investments. This can be relatively high, compared to investing a larger amount – where brokerage commission costs can be as low as US$0.005 per share on Interactive Brokers or a minimum of US$1.49 per trade.

Also mentioned in the article, we may not get our full entitlement for dividends, and may not receive investor documents from the companies that we invest in.

Finally, and going back to one of our first points, we enjoy much greater access with fractional investing today. However, this can be a double-edged sword, especially if any new or inexperienced investors believe that they can now trade fractional shares just for short-term profit.

There are both pros and cons to investing in fractional shares. Nevertheless, it is an extra option we have to gain exposure to companies we may not be able to in the past. In that regard, having the option is always a better thing than not having the option.

Companies Understand The Value Of A Lower Share Price Too

The current share prices for these technology giants listed above are all post-stock splits in recent years. For example, Alphabet (Google) shares split 20-to-1 in July 2022. If the split hadn’t taken place, each of its shares would be trading at US$3,720 instead of US$186.

The same thing applies to Amazon, which split its shares 20-to-1 in June 2022. Tesla has also split its shares twice since 2020. Apple has split its shares five times since its listing in 1980. More recently, Nvidia split its shares 10-to-1 in June 2024 and 4-to-1 in July 2021.

This would have made investing in fractional shares of these companies more valuable. Nevertheless, there are mainstream companies today that still have share prices above the US$1,000 mark.

For example, new entry into the top 10 US companies by market capitalisation, pharmaceutical giant Eli Lily is still trading at US$873. Other examples include Booking Holdings (Booking.com) – trading at US$5,018, as well as Coca Cola trading at US$1,443. Of course, there are others too. There are also other counters, such as Class A shares for Berkshire Hathaway which is trading at nearly US$722,980 a share. Even though fractional trading exists, it is not one of the counters offered by certain brokerages.

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