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Purchasing fractions of ETFs/mutual funds

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ACthelimefool
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Purchasing fractions of ETFs/mutual funds

#403850

Postby ACthelimefool » April 13th, 2021, 12:16 pm

Afternoon, I have a question regarding purchasing units/equivalents of mutual funds and ETFs.

I have been purchasing Fidelity World Index P Acc through youinvest for a few years. I have noticed that this allows me to invest a set regular amount by allowing purchase of increments of this fund, to two decimal points worth (the current total holding is a figure ending .09, suggesting that this fund is handled in hundredths).

For the new tax year, I decided to diversify and increase my exposure to emerging markets. After a lot of reading, I settled on an Xtracker ETF and set the monthly investment amount. Upon reviewing the purchase details, I have discovered that this ETF seems to only be purchased in whole integer unit quantities, with some 10% of the monthly investment allocation not being invested. I understood that the markey value if thus ETF was much higher than the Fidelity Index fund, so expected less units BUT I assumed that the ETF would be purchased in a similar way, i.e. with percentages of units being used to use up the full investment amount.

I failed to reailse this, but need to learn from it. Is there any handy indication in fund or broker literature that shows whther the investment you want to buy is available in either whole units or as fractions? Does the KIID for example define the investment principles?

Alaric
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Re: Purchasing fractions of ETFs/mutual funds

#403858

Postby Alaric » April 13th, 2021, 12:27 pm

ACthelimefool wrote: Does the KIID for example define the investment principles?


It's not exactly an investment principle, more a question of legal status. ETFs are treated as shares, therefore have the usual characteristics of stock market investments, namely can be dealt continuously during market opening hours but only in whole numbers of shares.

Perhaps reflecting their heritage from Unit Trusts, OEICs are only priced once a day, but are made available in fractions of a unit.

ACthelimefool
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Re: Purchasing fractions of ETFs/mutual funds

#403873

Postby ACthelimefool » April 13th, 2021, 1:22 pm

Thanks for this advice so promptly after my OP, recognising the point about legal status, is there a simple rule of thumb regarding OEICs allowing fractional purchases and ETFs not allowing such? Or do some OEICs not allow fractional purchase? Does any documentation, specific to each investment product, define what purchase philosophy is allowed?

mc2fool
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Re: Purchasing fractions of ETFs/mutual funds

#403884

Postby mc2fool » April 13th, 2021, 1:59 pm

ACthelimefool wrote:is there a simple rule of thumb regarding OEICs allowing fractional purchases and ETFs not allowing such? Or do some OEICs not allow fractional purchase?

Yes, the simple rule of thumb is that with OEICs/UTs you can buy fractional units and with ETFs you can't. :D

I've not heard of any OEICs/UTs that don't allow fractional units. With ETFs it's not a matter of whether they allow it or not, as ETFs are traded on the secondary market. However, I have heard of some brokers who will allow fractional shares, 'cos they're actually owned by the broker's nominee and while they buy a whole share they can allocate portions of it among several clients.

So ask Youinvest if they allow the buying of fractional shares, and if so how to make that happen.

Alaric
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Re: Purchasing fractions of ETFs/mutual funds

#403886

Postby Alaric » April 13th, 2021, 2:00 pm

ACthelimefool wrote:is there a simple rule of thumb regarding OEICs allowing fractional purchases and ETFs not allowing such?


I would have thought so. I believe some Brokers may allow fractions of ETFs to be purchased in some circumstances when the ETFs are sufficiently popular. The point being that they aggregate all the fractions at their nominee.

EthicsGradient
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Re: Purchasing fractions of ETFs/mutual funds

#403908

Postby EthicsGradient » April 13th, 2021, 3:05 pm

A couple of articles about it - the first one suggests that a platform has to get clearance from the FCA to hold fractional shares for customers, for British-traded shares/ETFs anyway, so that may explain why many haven't bothered:

https://citywire.co.uk/funds-insider/ne ... e/a1315798

https://www.fool.co.uk/mywallethero/sha ... al-shares/

Of major platforms, Halifax does it in its Sharebuilder offering, which is targeted at modest monthly investment, so being able to purchase fractions is important: https://www.halifax.co.uk/investing/sta ... ilder.html

But that is, I believe (I don't use it) not an ISA, which may make a difference (to you, or even, perhaps, to the clearance). As far as I can tell, the regular Halifax Share Dealing and iWeb platforms don't offer it.

You'd certainly need to check with each platform whether they do it.

ACthelimefool
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Re: Purchasing fractions of ETFs/mutual funds

#403914

Postby ACthelimefool » April 13th, 2021, 3:12 pm

Thank you for sharing your experiences and knowledge, very kind and I will read the information that is hyperlinked.

Alaric
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Re: Purchasing fractions of ETFs/mutual funds

#403940

Postby Alaric » April 13th, 2021, 4:33 pm

EthicsGradient wrote:A couple of articles about it - the first one suggests that a platform has to get clearance from the FCA to hold fractional shares for customers, for British-traded shares/ETFs anyway, so that may explain why many haven't bothered:


In the wider world, I believe ETF shares are only available in whole numbers. A platform can allow individual investors to hold fractions because all the fractions are aggregated. However there's bound to be a fraction of one share left over. It's either going to have a deficiency or excess in its custody reconciliation for which presumably it needs FCA permission.


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