Personal Finance Blog

Feeling Fab after getting bonus share

Feeling Fab after getting bonus share

Feeling Fab after getting bonus share

Feeling fab after getting bonus share

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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. 

Deep Down: Bonus Share

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. 

  • Record Date:
    The record date is the date on which the company decides who is eligible for bonus shares. Let’s say the record is 6-July-2022 and If on this date shares are not in my portfolio then I won’t get bonus shares.
     
    Even if I bought shares on 5-July-2022, I won’t get the bonus shares. Keeping in mind the T+2 Settlement.
     
    The company will issue bonus shares to all shareholders who have shares in their Demat account on the record date.
     
  • Ex-Date: The ex-date is one day earlier than the record date. To be eligible for the bonus shares, an investor must purchase the shares at least one day before the 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. 

 

 

 

Pros of Bonus Share

  • As an investor, you do need to pay any tax while getting a bonus share.
  • Bonus Shares have created wonders for long-term investors since they are more inclined toward wealth creation. 
  • Investors’ trust has increased in the company due to this, he/she invests more in the same company. 
  • These shares are FREE to shareholders since they are issued by the company. 
  • By issuing bonus shares company value increase and its image in the market becomes competitive. 
  • Now more shares are changing hands, so it directly impacts the liquidity of the stock.

Cons of Bonus Share

  • From the lens of an investor, owning the bonus shares has a few disadvantages. However, they should be aware of the possibility of receiving bonus shares because the profit will remain constant, whereas the number of shares and EPS of the stock will have an inverse relation. 
  • The company doesn’t receive any cash for this activity and it has an impact on cash reserves. 

Stock Split v/s Bonus Share

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. 

Let us know what you think about the bonus share. leave your precious comment, and We will respond to it. 

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To your Investing and Financial Journey

Cheers

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RuPay Rajat

Making Finance Easy

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