Bonus Issue brings joy to our hearts. Isn’t it. The company may gift you bonus shares if you are an existing shareholder of any company as on record date. You get these bonus shares without paying anything.
It increases your shareholding in the company, however, the total value remains the same. Suppose, you are holding 100 shares of X company at 900 and it announces 1:1 bonus issue then you will get additional 100 shares. After bonus issue, you are now holding 200 shares of X company at 450. However, the total value would remain the same.
Number of Shares you are holding before bonus issue is 100 quantity at Rs. 900/- each share. The total value of your shares will be Rs.90,000/-. After bonus issue, you will have 200 shares each of Rs. 450/-.
The total value of your shares will be Rs. 90,000/- after bonus issue. So, as you can see, the bonus issue does not affect the ownership of any investor, it remains the same before and after the bonus issue.
Bonus shares are issued in the form of 1:1 or 1:2 to the investors. After the announcement of a bonus issue, a record date is fixed for the issue.
It is the date on which the bonus share is issued and to be eligible for the bonus, you must possess the shares on or before the record date.
If you buy shares after the record date then you will not be eligible for the bonus shares.
Do you know why companies give bonus shares to investors?
The Company rewards you in the form of giving a bonus share. By offering bonus shares, the total number of outstanding shares increases which eventually increases the trading.
Due to an increase in trading activity in the stock the liquidity of the stock also increases. Also, it benefits the company as people buy more and more stocks in a hope to get bonus shares and this increases the credibility of the company.
Each time a company issues bonus shares, its stock price is adjusted after the record date. Therefore, stock price drops and exchanges in a low-priced price range, which then earns the attraction of investors who could not buy due to the high share price.
Therefore, ultimately, it is beneficial to the company. Finally, it increases the number of outstanding shares and also the retail participation.
Bonus share increases your holding in the companies. Now when the company will give you the dividend, then you will entitle to get the benefit from the bonus shares as well.
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If you want to know anything else about bonus shares or anything related to the stock market then ask me in the comments section below. Happy Investing!
Published on: Oct 7, 2017