If you love surprises and gifts then you need to know about bonus share. Bonus share is given to those investors who are already invested in the company. Bonus shares have no direct impact on a company’s performance.
It is also a way to reward shareholders. The loyalty of shareholders is also rewarded. In Layman’s language, we can say that It is the additional shares provided to current shareholders at no additional cost based on the number of shares held. It is always paid from the company’s reserves.
Dividends are also a way to reward shareholders.
If someone says Bonus?
What do you think?
Yes, It means FREE! You don’t have to put your input to get something valuable.
You must have bought those Apparels where It is written: “BUY 1 GET 1 FREE”.
Let’s go straight to the bonus share announcement.
BOD: We are going ahead with Bonus Issue in the ratio of 1:2 this means you will get 1 bonus share for holding 2 existing shares.
The face value of the share remains the same.
Now if you’re thinking that you can borrow some money from your friends and then after getting a bonus share you will return their money then you need to understand the concept of Record Date and Ex-Date.
You can remember in this way.
Think of your Ex-girlfriend, so she has gone. Therefore Ex-Date means the reward is gone.
The main difference between Stock Split and Bonus Share is FREE!
You will get FREE shares in Bonus Issue but in the stock split, you won’t get free shares.
Face Value is decreased in case of a Stock Split whereas in the case of Bonus shares it becomes constant.
In the case of a Stock Split your investment value remains the same, whereas In the case of a Bonus Share your Investment value gets decreased since averaging of stocks has applied to your portfolio.
The number of shares has increased in both cases.
In Stock Split, cash reserves remain the same, but in Bonus Issue, cash reserves decrease.
Liquidity increased in both of the cases.
You don’t have to fill out a form or something to claim the bonus share. Companies already have your DEMAT ACCOUNT Number which is shared by your broker and the company also maintains their book of account where the Demat account numbers of all shareholders are stored.
The issuance of bonus shares increases the company’s value and market position. By issuing bonuses companies get more trust from their existing shareholders and they also attract new retail investors.
We hope We gave you some insights about the bonus share and delivered it in the best possible way.
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To your Investing and Financial Journey