Everything You Need To Know About Bonus Shares
Bonus shares are extra shares that a company gives to its existing shareholders as a "BONUS" when it can't pay a dividend to those shareholders even though it made a good profit for that quarter. Bonus shares can only be given to shareholders by a company that has made a lot of money or has a lot of cash on hand that can't be used for anything specific and can be given out as dividends. But these bonus shares are given to shareholders based on how much of the company they already own. For instance: If a company gives out 2:1 bonus shares, it means that a shareholder who already owns one share will get two more shares for that one share. Let's say that a person owns 1,000 shares of the company. When the company gives out bonus shares, he will get 500 of them, which is the same as (1000 * 1/2 = 1,000). When the company gives out bonus shares, he will get 500 of them, which is the same as (1000 * 1/2 = 1,000). When the bonus shares are given out, the shareholder will have more shares, but the value of the investment as a whole will stay the same. What is the record date? The record date is the date by which a company decides who can get bonus shares. The company will give bonus shares to all shareholders who have shares in their Demat account on the record date. What is an Ex-Date? It is the day before the record date. To get the bonus shares, an investor must buy the shares at least one day before the ex-date. Who can receive bonus shares? The company will give bonus shares to people who owned shares of the company before the ex-date and record date. For the delivery of shares in India, the T+2 settlement system is used. This means that the record date is two days after the ex-date. Shareholders have to buy shares before the ex-date. If they buy shares on the ex-date, the company won't give them ownership of the shares, so they won't be able to get bonus shares. Once the bonus shares are given a new ISIN (International Securities Identification Number), they can be sold. In 15 days, the bonus shares will be added to the account of the shareholder. From an investor's point of view, bonus shares have a lot of pros. 1) Investors who get bonus shares from the company do not have to pay any taxes. 2) Bonus shares are good for long-term shareholders of a company who want to create wealth with the company. 3) Bonus shares are given to shareholders for free by the company that owns them. This increases the number of shares an investor owns and makes the stock more liquid. 4) Bonus shares help an investor trust the business and operations of a company because the investor has already put money into the company. From the point of view of the company 1) Giving out bonus shares raises the value of the company and improves its standing and reputation on the market. This earns the trust of current shareholders and brings in a lot of small investors. 2) When companies give out bonus shares on the market, they have more shares that are free to trade. 3) When companies give out bonus shares, it helps them get out of situations where they can't or don't want to pay cash dividends to their shareholders. 4) The cost of bonus shares keeps going up over time when a company keeps giving them out instead of paying dividends.