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Learn how companies reward shareholders with bonus shares and how you can benefit from these corporate actions.
Bonus shares are additional shares given by a company to its existing shareholders without any additional cost, based on the number of shares they already own.
These are issued by converting a company's accumulated reserves into share capital. The issue of bonus shares increases the total number of shares outstanding while maintaining the same market capitalization.
Companies issue bonus shares for various strategic reasons that benefit both the company and its shareholders.
Bonus shares are a way to reward loyal shareholders without cash outflow, enhancing shareholder value.
Increasing the number of outstanding shares improves stock liquidity in the market.
Issuing bonus shares signals financial strength and confidence in future earnings potential.
By reducing the per-share price, bonus shares make the stock more affordable to small investors.
Receive additional shares at no cost, increasing your total shareholding in the company.
Bonus shares can lead to capital appreciation if the company performs well post-issue.
Generally tax-free at the time of issue (tax implications only when sold).
Maintains your percentage ownership in the company without additional investment.
More shares mean potential for higher dividend income if company maintains dividend rate.
Often viewed positively by investors, potentially increasing demand for the stock.
Company's board proposes bonus issue and recommends ratio.
Approval through ordinary resolution in general meeting.
File necessary documents with regulatory authorities (SEBI, ROC).
Company announces record date to determine eligible shareholders.
Bonus shares credited to demat accounts or physical certificates issued.
Stock price adjusts proportionately on ex-bonus date.
| Feature | Bonus Shares | Stock Split |
|---|---|---|
| Purpose | Capitalize reserves to reward shareholders | Make shares more affordable by reducing face value |
| Accounting | Reserves converted to share capital | Face value reduced, no change in reserves |
| Shareholder Equity | No change in total equity | No change in total equity |
| Tax Implications | Generally tax-free | Always tax-free |
| Market Perception | Positive signal of company health | Neutral, just technical adjustment |
| Impact on EPS | Dilutes EPS proportionately | No impact on EPS |
The record date is the cutoff date set by the company to determine which shareholders are eligible to receive bonus shares. You must be a registered shareholder on or before this date to qualify for the bonus issue.
Bonus shares are generally not taxable at the time of issue. However, when you sell them, capital gains tax applies based on the holding period (short-term or long-term) from the original purchase date of the shares that qualified for the bonus.
The share price adjusts proportionately on the ex-bonus date. For example, in a 1:1 bonus issue (1 bonus share for every 1 held), the share price would theoretically halve, though market forces may cause variations.
Yes, but you must ensure your shares are credited to your demat account before the record date. For physical shares, the transfer must be registered with the company before the record date.
Bonus shares are free, issued from reserves, while rights issues require payment and are a method of raising new capital. Rights issues may dilute ownership if not fully subscribed.
Our experts can guide you through bonus share issues, tax implications, and investment strategies.