What Are The Benefits Of Bonus Shares?
A bonus share is an extra share of stock that a company gives to its current owners for free. The company gives its owners new or extra shares in the form of bonus shares when it doesn't have enough cash to pay cash dividends to its shareholders, even though its sales are good. Bonus shares are given to shareholders in proportion to the number of shares and dividends they own, and corporations don't charge their shareholders extra fees for giving out bonus shares. Even if a company has a lot of money, it can still give out bonus shares to avoid the high dividend distribution tax. When companies declare dividends, they have to pay this tax. Offer of Bonus Shares When a company gives its shareholders bonus shares, this is called a "bonus issue of shares" or a "bonus share issue." Companies give out bonus shares based on a constant ratio formula that lets them give each shareholder the same number of shares no matter how many shares they already own. Take the case of a shareholder who owns 100 shares of business ABC. The company has now decided to give bonus shares at a 2:1 ratio, which means that for every share a shareholder has, they will get two bonus shares. So, in exchange for their original 10 shares, the shareholder will now get 20 bonus shares. When bonus shares are given out, the dividend per share goes down because there are now more shares. When a bonus issue happens, the share price goes down, but the investment value of the shareholder doesn't change because they now own more shares than they did before. What's good about bonus shares Bonus shares are good for the company's shareholders because they give the company more equity and make it easier for shareholders to get along with each other. Investors may be willing to let the value of their shares go down because of the bonus share offering. When a company makes a lot of money, the price of its stock goes up. So, when bonus shares are traded on secondary markets for liquidity, they give their owners a lot of money. Record date and their ex-date The record date is a cutoff date set by the company, and investors must be shareholders of the company before this date in order to be eligible for bonus share issues. Also, the ex-date is one day before the record date of the company. In India, shares are put into a Demat account two days after the day they start trading. The company could give existing shareholders bonus shares before the Ex-Date and the Record Date. You must buy the business’ stock before the ex-date in order to be eligible for bonus shares. Since the investor can't buy the shares before the record date, any shares bought on the ex-date won't be eligible for the bonus shares. Conclusion Bonus shares are added to a shareholder's Demat account within 10 to 15 days of getting a new ISIN (International Securities Identification Number). Shareholders can log in to their online Demat accounts to see a statement that says bonus shares were delivered on a particular day, or they can wait for an SMS or email to tell them that bonus shares have been added to their Demat accounts.