What is a Fractional Share Right?
Put very simply, when an investor doesn't have enough money to buy a whole share, Fractional Share Rights (FSRs) give them the ability to invest whatever that sum of money is, in a fraction of that share / security.
Let's explain by way of example:
An investor named Zandile has heard that the Satrix Indi ETF is a great investment. Zandile wishes to contribute R100 toward buying these ETF securities.
On investigation, Zandile discovers that a single Satrix Indi ETF costs R70, so she knows that she can purchase one whole security, but is left confused as to what she should do with the R30 left over from that purchase (R100 - R70 = R30). If she could, she'd also like that R30 invested in Satrix Indi, but wonders if she needs to wait until she has the full amount to buy another whole security?
The answer is no. The clever people at SatrixNOW have devised a way to allow her to invest that R30 in Satrix Indi as well.
How it works:
In order to give effect to her R30 investment (transaction) in Satrix Indi, Satrix enters into a contract for difference (CFD) Transaction with Zandile whereby Satrix acts as a principal and issues Zandile a CFD for a pro-rata percentage of the underlying whole security.
Through that CFD, Zandile will have a contractual claim against Satrix to the economic benefits and risks associated with ownership of the Satrix Indi ETF (price movements and dividends) without having to own the Satrix Indi ETF directly.
In short, fractional share rights (FSRs) give Zandile all of the economic benefits of security ownership without owning the underlying security.
And the beauty of these FSRs is that if Zandile continues to make further fractional investments in Satrix Indi and ultimately ends up with a whole Satrix Indi ETF, the CFD contract is closed out and the whole security is delivered to her.
What are the benefits of Fractional Share Rights (FSRs) on SatrixNOW?
1. Diversification You can’t buy or sell fractional share rights (FSRs) on a securities exchange. However, as a SatrixNOW customer your ownership in a fraction of a security can be down to 1/1,000th - putting every Rand and Cent to work. This gives the investor the chance to invest in a variety of different ETFs he / she may not have had access to if required to purchase whole ETFs.
This brings diversification to the portfolio which can provide higher growth and less risk than any individual investment within the portfolio.
2. Equal opportunity to Investors Offering investors on our platform the ability to purchase Fractional Share Rights also means that our service gives equal opportunity to all investors. It means an investor with a portfolio of R2 500 receives the same diversification benefits as one with a R250 000 portfolio (and we don’t require a minimum deposit or investment).
3. Potential to reach your goals faster If you try to ensure that any available funds in your account are always invested, your money can work harder for you as it potentially benefits from investment returns and the effect of compounding (described above).
And the longer the investment, the bigger the potential growth allowing you to reach your goals faster.
What are the risks of Fractional Share Rights (FSRs) on SatrixNOW?
The investor assumes risk against Satrix Managers (RF) Proprietary Limited (which we call counterparty risk) in respect to Fractional Share Rights (FSRs) only. The investor acquires FSRs through the issue of a contract for difference entered into directly with Satrix Managers (RF) Proprietary Limited as principal.
However the counterparty risk is reduced by Satrix Managers (RF) Proprietary Limited's risk and hedging policy which ensures that we are always 100% hedged in respect of market exposure from investors trading through the SatrixNOW platform.
Further to this, the SatrixNOW Terms and Conditions set out in detail the insolvency protections which ensure client monies and profit are protected. Whole securities belong to the investor and are kept separate from Satrix Managers (RF) Proprietary Limited's estate and assets in the same way as they would be through any other JSE stockbroker, and so are also protected on insolvency.