Through this blog post, We’ll be explaining What are Bonus Shares, What are the Benefits of Bonus Shares, When are they issued and how to get them, and other such general information about Bonus Shares.
Table of Contents
Bonus Shares means Free Shares
Just as the name suggests, these are nothing but “Bonus” given on any company’s shares. Any company from time to time ends up declaring Bonus instead of a Dividend.
For example, There’s a Company XYZ and its share is trading at Rs. 1000 and it declares a 9:1 Bonus. So, you will be getting 9 Free shares per 1 share of XYZ company that you’re holding.
But that doesn’t mean you will be getting 10 shares of Rs. 1000 each after Bonus Issue. The price of the share goes down in a similar proportion after a Bonus Issue. If a Bonus Issue is of 1:3, the stock Price would generally fall by 33% after the Bonus Issue.
Low price of the Shares after Bonus Issue, makes them look affordable for smaller (retail) investors. It also attracts new investors to the Company. It also helps companies to better distribute their Shareholding.
Improve Liquidity in Shares: Since there will be more supply of shares in terms of quantity after a Bonus Issue and the stock would be affordable to small investors. This results in more retail Participation and improves the liquidity of the Shares.
Bonus Info: Infosys has declared Bonus 8 Times since Inception. So, If you had Bought just 1 Share of Infosys in 1993, you will be having around 512 Shares in 2021
Not every Shareholder receives a Bonus Share after the Company’s Announcement of Bonus. Whenever a Company announces a Bonus Issue, it announces three things:
- Bonus Ratio
- Record Date
- Ex- Bonus Date
Only the shares purchased on or before the Company’s Ex Bonus Date are entitled for a Bonus. Since we follows T+2 Settlement System in India, All the investors holding the stocks in their DEMAT on or before the Record date are eligible to get bonus shares of the company.
In simple language, You need to Buy the stock at least 1 Day Before the announced Ex-Date to be eligible to Receive the Bonus Shares.
Effect of Bonus Issue on Mcap of Company
The market capitalization of the Company is the product of Number of outstanding Shares and Market Price per share. After the Bonus Issue, the Number of outstanding Shares of the Company increases and the price per share decreases in the same proportion of Bonus Issue, so the M-cap of the Company does not change after Bonus Issue.
We have tried to explain What are Bonus Shares, What are the Benefits of Bonus Shares, When are they issued, and how to get them. However, If you have any doubt about the Bonus Shares, Please comment your queries below.
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