Stock Split, What is Stock Split, How does Stock Split work, Bonus Share, What is Bonus Share

Stock Split And Bonus Share (Bonus Issue)

Today we will learn about the very interesting concepts of the stock market. We know about the stock splits and bonus shares. We will know what is a stock split? How does a stock split work? What are the advantages and disadvantages of a stock split? What is a bonus share? and Some important dates like ex Date, Record Date, etc.

Stock Split, Bonus Share, Ex-date, Record Date

What is Stock Split?

Stock split means share split. The company splits its shares under a stock split. Usually, when the shares of a company become very expensive, then small investors are not able to invest in those shares. In such a situation, the company also resorts to a stock split to attract small investors to its shares and to increase the demand in the market.

Stock split means the division of shares. Just as a split means the division of something, similarly in the stock market, a stock split means the division of shares. This is not done at will, it does not mean that every company listed in the stock market will split its stock, the decision to split the stock is a personal decision of the company.

Also Read: What is Share Buyback?

How does Stock Split work?

Used by companies to break up stock split shares and increase the number of shares of their company in the market, companies can split their shares in any ratio of 1,2,3,4, etc., this will affect the valuation of the company. Does not matter.

As we understand from the stock split example, if an ABC company splits its stock in a 1:1 ratio, then every person who is an investor in that company will get their shares divided in a 1:1 ratio and each of its shares will now be divided into two. Shares will be converted into shares, ie if he had 100 shares then he would become 200 shares after the stock split.

Advantages of Stock split

1. Investing in the right stock yields good returns when there is a stock split (share split). It is considered a symbol of the good performance of stocks. The face value of shares can also be reduced from 10 to 5 or 1 but the entire value of the shares does not change.

2. The biggest advantage of a stock split is that the profit increases after that. After many types of research, it has been found that the man who became a shareholder became successful and profitable for his Vasco.

3. Once the stock is split to a certain extent, the company starts issuing bonuses, which are nothing less than a boon for investors. This increases shareholders' investment manifold.

Risk of a stock split

1. Investing in the wrong stock causes a 'stock split reverse' which is the opposite of a 'stock split', and the effect is the opposite.

2. The process of 'stock split reverse' will have no effect on the price of the shares and the exchange can also hold your stock.

3. This can also result in the loss of a large portion of the capital you have invested. In the case of 'stock split reverse,' companies of physical shares are sent for 'name transfer', in this case, they may have difficulty selling physical shares on time.

Read Also: What is Market Cap or Market capitalization?

Bonus Share Or Bouns Stock

If you are active in the stock market then you must have heard the name of the bonus issue. If we talk in simple language, then the bonus issue is a type of stock dividend. Whenever a company pays a bonus issue to reward its shareholders. In the bonus issue, the company gives shares to its shareholders instead of money or dividend. The company issues these shares from its reserves. Bonus shares are given free of cost and are given to the shareholders on the basis of the number of shares they hold in the company. Bonus shares are usually issued in specific ratios like 1:1, 2:1, 3:1, etc.

If the ratio is 2: 1, the shareholder gets two more shares for each share. Meaning that if the shareholder has 100 shares then he will get 200 more shares and he will have a total of 300 shares. This increases the shares with him but does not increase the value of his investment. Like dividends, the bonus also has an Announcement Date, X Bonus Date, and Record Date.

Companies also bring bonus issues to increase the retail investor participation in the stock, especially when the share price has gone up and it is difficult for the small investor to buy the shares. Regarding bonuses, the number of shares in the market increases but its price drops although the face value of the stock does not change.

Now let's understand the bonus shares properly:

Suppose you have 100 shares of ABC company, currently, one share of that company is worth Rs 80, and that company issues a 1: 1 bonus then you will have 200 shares and the price of one share will be Rs 40.

Read Also: Top 8 Trading terms that every investor should know.

You should keep the following points in mind with respect to bonus shares:

1. Bonus Announcement Date: The date on which a bonus is announced by the company.

2. Record Date: This is the date before which an investor will be given bonus shares only if he has bought the shares of that company. If someone invests in that company after the record date, they will not be given Bonus Share.

3. Cum Bonus: This means shareholders are entitled to receive bonus shares.

4. Ex Bonus Date: It is the date on which it is mandatory for all investors to have shares in the Demat account of the company in proportion to which the company issues bonus shares.

Read Also: Best Youtube channel for the stock market in India.

Frequently Asked Questions

What is Stock Split?

When a company splits its shares, it is called a stock split. When the shares of a company become too expensive then the company is a stock split cutter so that small investors can invest in those shares. It can be 1:1 or 1:2. 1:1 means that if you have 1 share of that company then you will get 1 more share on that share, in the same ratio the share price will also decrease. Now you will have 2 shares.

What is Bonus Issue or Bonus Share?

A bonus issue is a type of stock dividend, which is given by the company to its shareholders. In the bonus issue, the company gives shares to its shareholders instead of money or dividend. Under bonus issue, the company issues these shares from its reserves. Bonus shares are usually issued in specific ratios like 1:1, 2:1, 3:1, etc. If the bonus issue is 2:1 then another share will be given for 2 shares, now you will have 3 shares of that company.

What is the Record Date in Bonus Issue?

The record date is the date before which an investor has purchased shares of that company, then only bonus shares will be given to him. If anyone invests in that company after the record date, he/she will not be given bonus shares.

What difference between Bonus Issue and Dividend?

There is a difference between a bonus share and a dividend. When the company gives money to its shareholders on the basis of a reward, then it is called a dividend. And if the company gives shares to its shareholders as a reward, then it is called a bonus issue or bonus stock.

What is Ex-Date in Bonus Share?

Ex-bonus date is the date on which it is mandatory for all investors to have shares of that company in the Demat account. If an investor sells his shares before the Ex-bonus date, he does not get the benefit of the bonus.

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