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Stock Split VS Bonus Shares

What is Stock split...?

A stock split happens when a company divides its stock into more shares. However, the total value of holdings remains unchanged, which means the price of the shares falls proportionately.

This is typically seen as a means of boosting liquidity by making shares affordable for small-scale and retail investors.

Last week, IRCTC shares went for a stock split in the ratio of 1:5—meaning each share got split into five, while the per-share price came down to one-fifth.

Hence, each company is trying to be in reach of retail investors with this stock split frenzy. Apparently, it makes stocks cheaper in the eyes of retail investors—which is actually not the case, but with the lower price range they feel now they can buy it.

What is Bonus share..?

Many companies Issue bonus shares instead of dividends to shareholders as a reward. When some company issue bonus shares, shareholders will get some additional shares but their value will be adjusted accordingly.Suppose If any company announced bonus issue in 4:1 ratio, share holders will receive 4 shares for 1 share their holding.

Most of the growing companies prefer to issue bonus shares instead of dividends, because Issuing the bonus share will increase Company's share capital and make share price more affordable to retails investors.

When it comes to Investors, the number of share will be increased where as their positional value won't change,they won't get any additional profits apart from liquidity. Bonus shares are not taxable ,but if investor want to sell those, capital gain tax will be applied.

To sum up, Bonus shares will increase the share capital but not it's net assets.It is simply reclassification of reserves with no net change in total equity, As It will increase liquidity many people consider it a positive move by company. In reality investors won't get the benefit immediately.When it compared to Stock split, In stock split face value will be adjusted accordingly, where as In bonus Issue there won't be any change in face value.

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FunTech Team

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