A quick guide on fractional investing

In simple terms, fractional investing, or fractional shares, is purchasing a portion or a share or ETF rather than a whole unit. This means that with fractional investing, you can buy a specific dollar amount of a share or ETF regardless of the unit price. Here, we explain how it works and other considerations to keep in mind. 

What is fractional investing? 

As the name suggests, fractional investing allows you to buy a fraction, or portion, of a unit in a share or ETF, rather than restricting you to buying only whole units. This means that regardless of how much you have to invest, you can invest in a portion of an investment that may cost hundreds of dollars per unit, giving you the flexibility to invest the dollar amount you want without having to trade in whole increments. 

Fractional investing is helpful if you don’t want to invest large amounts, if you have only limited funds available, or you just prefer to invest a specific amount. It also makes portfolio diversification easier. 

With Betashares Direct, if you place a dollar-based market order, you can invest the exact amount you want with no rounding or wastage, subject to a minimum $10 amount for buy orders.  

How does fractional investing work? 

As explained above, fractional investing allows you to buy a portion of a share or ETF unit rather than being required to purchase whole units. 

As an example, if you have $1,000 to invest in an ETF with a unit price of $105, you can invest the whole $1,000 and receive 9.5 units, rather than receiving only 9 units and being left with $55 sitting in cash.  

This allows your money to work for you straight away and reap the benefits of compounding for the full amount you have available to invest, rather than waiting to purchase whole units. 

Benefits of fractional investing 

Invest with smaller amounts 

Fractional investing significantly lowers the entry barrier to the investment world, allowing you to start with smaller amounts of money. With Betashares Direct, you can begin investing in ETFs with just $10, enabling you to benefit from compounding returns earlier and start growing your wealth sooner. 

Intuitive 

Fractional investing simplifies the investment process by allowing investors to think in terms of dollar amounts rather than units or shares. Instead of calculating how many whole shares you can afford, you can simply decide how much money you want to invest. This also makes it easier to allocate their funds precisely according to their investment strategy or financial goals, without the need for complex calculations or leaving uninvested cash due to unit or share price limitations. 

Diversification 

Fractional investing can also help you to diversify your holdings and manage risk more conveniently. Since you’re not locked into purchasing whole shares or units, you can diversify your portfolio with smaller amounts of money, rather than having to wait until you have enough money to buy a whole unit.  

Reduce residual cash 

Fractional investing also helps to avoid the cash drag associated with dividend or distribution reinvestment plans. Dividends and distributions can be automatically reinvested in full, ensuring no cash is left uninvested and your money is working for you continuously. 

Dollar cost averaging 

Dollar cost averaging involves investing the same amount of money at regular intervals, for example monthly or quarterly – without regard to market movements. Fractional investing makes it easier to implement this strategy as you can invest smaller amounts regularly, helping you to gradually accumulate wealth over the long term and mitigate market timing risk. 

Other important considerations  

Dividends and distributions 

Just as fractional investments represent a portion of a full share or unit, if you receive a dividend or distribution, it will be reflective of the portion that you own. For example, if you own 0.5 units of an ETF, you will receive half the distribution value of a full unit.  

Transfers or trading of part shares or units outside Betashares Direct 

Only whole shares and units are recognised or able to be traded or transferred outside of Betashares Direct. Any part shares or units you hold in your Betashares Direct account can, however, be redeemed to cash and withdrawn at any time. You should also consider the potential taxation implications of buying, holding and selling fractionalised interests (including part shares or units) through Betashares Direct.

Further information is available in the Product Disclosure Statement, available at www.betashares.com.au/direct.