What is Bonus Share? How It Affects Your Shareholding in India
Bonus shares are free additional shares given from accumulated profits.
Bonus shares are additional shares issued by a company to existing shareholders at no cost, funded from accumulated profits or reserves. If a company announces a 1:1 bonus, every shareholder gets one additional share for each share held. Your total shares double but the stock price adjusts proportionally.
If you hold 100 shares at Rs.1,000 each (total value Rs.1 lakh) and the company announces 1:1 bonus, you get 100 extra shares. Stock price adjusts to approximately Rs.500. You now have 200 shares at Rs.500 = still Rs.1 lakh. Your percentage ownership is unchanged. The company has not created new value.
Why do companies issue bonus shares?
To reward shareholders without cash outflow. To improve liquidity by increasing shares and reducing per-share price. To capitalize reserves and surplus into share capital. To signal confidence in future growth. Companies like TCS, Reliance, and Infosys have issued multiple bonuses.
Does bonus create real value?
No. It is like cutting a pizza into more slices. Each slice is smaller but total pizza remains the same. However, lower stock price after bonus can improve liquidity and attract retail investors.
Track upcoming bonus announcements on Stockk Equity. Apply for bonus-issuing IPOs at Stockk IPO.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice. INDIRA SECURITIES PRIVATE LIMITED : SEBI REG. NO.: INZ000188930, NSE TMID: 12866, BSE TMID: 663, CDSL DPID: 17000, MCX TM ID: 56470, NCDEX TM ID: 01277, CDSL REG.NO.: IN-DP-90-2015, CIN:U67120MP1996PTC085111, RA SEBI REG. No.: INH000023269, IA SEBI REG No.: INA000021410. For any complaints pertaining to securities broking please write to [email protected], for DP related to [email protected].
Frequently Asked Questions
Are bonus shares taxed?
Receiving bonus shares is not taxed. Tax applies only when you sell. Acquisition cost is considered zero. LTCG above Rs.1 lakh is taxed at 10%. Use StockkAsk at stockk.trade/stockkask for tax impact calculations.
What is the record date for bonus?
The date on which your name must appear in the company's register of shareholders to be eligible. T+1 settlement means you must buy at least one trading day before the record date.
How does bonus differ from stock split?
Both increase share count and reduce price proportionally. But bonus capitalises reserves. Split changes face value. Bonus: 1:1 gives double shares from reserves. Split: Rs.10 face value to Rs.5 gives double shares by splitting face value.
Can bonus be negative for long-term investors?
Not really. If the company continues growing profits, eventually the stock reaches pre-bonus levels, effectively doubling your value. Many multi-baggers issued bonuses along the way.
Why does the stock sometimes rise after bonus announcement?
Market interprets bonus as management confidence. Also, lower post-bonus price attracts more buyers, increasing demand.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.
INDIRA SECURITIES PRIVATE LIMITED : SEBI REG. NO.: INZ000188930, NSE TMID: 12866, BSE TMID: 663, CDSL DPID: 17000, MCX TM ID: 56470, NCDEX TM ID: 01277, CDSL REG.NO.: IN-DP-90-2015, CIN:U67120MP1996PTC085111, RA SEBI REG. No.: INH000023269, IA SEBI REG No.: INA000021410
