Fractional Investment: A New Era Of Accessible Investments

Introduction

Fractional investing is a modern approach that allows investors to pool their funds and collectively invest in high-value assets, such as real estate properties, stocks, startup equity, securitised debt instruments, etc. Instead of requiring large upfront money, fractional investing enables individuals to invest smaller amounts and gain partial ownership of these assets. 

This method democratises investment opportunities, making them more accessible to a wider range of investors who may not have the capital to invest individually. Fractional investing offers benefits such as reduced risk through diversification, access to otherwise unattainable assets, and the potential for predictable, regular, higher returns depending on the asset.

Fractional ownership, a concept long prevalent in the US and Europe, is now gaining popularity in India. In our upcoming blog, we will delve into the features of fractional investments, their benefits, and the emerging opportunities they present for retail investors.

Features/Benefits Of Fractional Investing

Fractional investing has seen rapid growth in India in the last few years. Data available on real-estate fractional investing reflects a 300% growth from INR 1500 crore in 2019 to INR 4000 crore in 2023, indicating the changing preferences of Indian investors¹. Some key features that make fractional investment an attractive choice include:

• Accessibility And Democratisation- Fractional investing breaks down significant assets into smaller, more affordable portions, enabling middle-class earners to participate in sizable projects.
• Pre-vetted Investments- SEBI-regulated platforms like Grip Invest conduct thorough due diligence on behalf of investors, ensuring investments are in pre-vetted assets, enhancing trust and generating predictable fixed-income returns.
• Diversification- Fractional investments allow a single investor to invest small amounts across multiple fractionalised assets, thus providing excellent portfolio diversification for retail investors.
• Potential for Higher Returns- Fractional ownership opens up avenues for investment which have historically provided better returns than traditional investment options like fixed deposits and bonds.

Assets That Can Be Invested In Fractionally

The spectrum of fractional investment opportunities is expanding rapidly, attracting investors seeking access to previously unattainable assets with smaller capital commitments. Some assets suitable for fractional investing include:

• Securitised Debt Instruments- Securitised debt instruments represent a pool of underlying assets, such as loans or invoices, that are packaged together and sold to investors in a fractional ownership format.
• Real Estate- Ownership of luxurious properties like beach houses, city apartments, or commercial real estate for stable returns.
• Stocks- Investment in small portions of high-value stocks through fractional shares, providing broader market access.
• Exchange Traded Funds (ETFs)- Exposure to multiple asset classes by investing in ETF shares, facilitating portfolio diversification.
• Arts And Collectibles- Ownership of small pieces of valuable paintings, sculptures, and memorabilia, benefiting from appreciation in the art market.
• Luxury Assets- Shared ownership of luxury items such as aircraft, yachts, watches, cars, and jewellery.
• Start-ups And Private Equity- Investment in fractional VC platforms offering exposure to promising start-ups and private companies previously accessible only to institutional investors.

Role Of Regulated, Tech-Enabled Fintech Platforms In Fractional Investing 

Recognising the need to create more access for retail investors, SEBI has provided a licence to offer such fractional investments for certain asset classes. This largely includes fixed-income instruments like corporate bonds and SDIs (Securitised Debt Instruments). Investors can leverage such regulated platforms to now make investments at just INR 1,000 and ensure adequate transparency and protection are provided for their investments. 

Such regulated and tech-enabled fintech platforms like Grip Invest empowers investors with digital investment platforms that serve as marketplaces for fractional investment. These platforms offer comprehensive asset details and streamline investment through digital payment channels, making fractional investing accessible and user-friendly.

Grip Invest is a SEBI-regulated online bond-providing platform (OBPP) and has integrated SEBI’s ‘Request For Quote’ for transparent and regulated fractional investing. Get a comprehensive view of the online investment discovery platform here.

Conventional high-priced products, such as securitised debt instruments like InvoiceX, LoanX, and LeaseX, are now available for retail investors through Grip Invest fractional investing products. Such products lower entry barriers and promote financial inclusion. 

Grip Invest pioneered making SEBI-approved SDIs accessible to individual investors, enabling investors to earn returns ranging from 11% to 16%.

Conclusion

In conclusion, while alternate investment options like NFTs and cryptocurrencies gain traction globally, Indian investors prefer regulated investments for stability and credibility. SEBI's approval of the fractional investing framework will ensure a regulated and secure environment for investors, fostering inclusivity in the market. Investors can explore the evolving fractional investment market through regulated platforms like Grip Invest, which offer smaller ticket sizes ideal for retail investors.

Frequently Asked Questions On Fractional Investment

1. Is fractional ownership safe? 

Fractional ownership provides shared ownership as multiple investors jointly pool their funds and own a small property. Distributing risk among numerous investors and investing in small portions of various properties dilutes the performance risk of such properties.

You can invest in SDIs and commercial real estate properties exclusively available for HNIs and earn stable and higher returns. Even though these products are non-market linked, there are some risks involved.

2. Can I sell my fractional ownership?

Yes, you can sell your fractional ownership at any time you want. It is an equity interest recorded by deed. Investors can freely buy and sell fractional ownership, like any other asset. However, you must conduct your research to assess the asset's value. 

3. What are some regulated fractional ownership platforms?

While many online fintech platforms offer different fractional investing opportunities, finding SEBI-regulated products is like finding a needle in a haystack. Grip Invest now offers RBI and SEBI-regulated fractional ownership products suitable for individual investors.

4. What is an ETF?

An ETF, or exchange-traded fund, is a marketable security that tracks an index, a commodity, a bond, or a basket of assets like an index fund.

References:

1. Financial Express <https://tinyurl.com/7pz64dvj>

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