bonus issue stock split

Bonus Issue Stock Split: Understanding Key Corporate Actions for Investors

In the stock market, companies often take certain corporate actions to improve liquidity, reward shareholders, or make their shares more affordable. Two such important corporate actions are Bonus Issue and Stock Split. While both increase the number of shares held by investors,they differ significantly in purpose, mechanism, and impact.Understanding these concepts is essential for both new and experienced investors.

What is a Bonus Issue?

A Bonus Issue refers to the process by which a company issues additional shares to its existing shareholders free of cost,in a specific ratio.These shares are distributed from the company’s accumulated reserves or profits.

Example of Bonus Issue

If a company announces a 1:1 bonus issue,it means shareholders will receive 1 additional share for every 1 share held.

•If you own 100 shares,you will receive 100 bonus shares.

•Total share after bonus= 200.

Key Characteristics of Bonus Issue

•No cash payment is required from shareholders.

•The company’s reserves decrease, but share capital increases.

• The market price of the stock adjusts proportionately after the bonus.

•The overall investment value remains the same immediately after the issue.

Why Companies Issue Bonus Shares

1.Reward loyal shareholders without using cash.

2.Increase liquidity by increasing the number of shares in the market.

3.Signal confidance in future earnings.

4.Make the stock appear more attractive to retail investors.

What is a Stock Split

If a company announces a 1:5 stock split,one share of face value ₹10 become five shares of face value ₹2 each.

• If you had 100 shares, you will now have 500 shares.

•The share price reduces proportionately.