What Is Bonus share ?
Bonus share Means, Company Giving Free Shares To The Share Holders.
When A Company Announces Bonus Shares, Company Also Announces The Details Regarding Bonus Like Ex-Bonus Date, Record Date, And Bonus Ratio.
For Example, Infosys Share Price Is 1000 Rupees And Announced Bonus Shares On 09-08-2021, This Date Is Known As Announcement Date And For This Bonus Shares The Company Also Announces Ex-Bonus Date As 30-08-2021, Record As 31-08-2021 Bonus Ratio As 3: 1.
Bonus Ratio
From The Example Example, The Bonus Ratio Is 3: 1, which Means For Every One Share The Company Will Give 3 Bonus Shares.
If You Have 10 Shares Of Infosys. Then You Will Get 30 Shares As Bonus. So Your Total Shares Will Be 40.
Ex-Bonus Date
The One Who Bought The Shares Before The Ex-Bonus Date Will Only Eligible For The Bonus Shares.
In The Above Example, The Ex-Bonus Date Is 30-08-2021. So If You Bought The Shares Before 30-08-2021 Then Only You Are Eligible For Bonus Shares.
The People Who Bought The Shares On 30-08-2021 which is Ex-Bonus Date Or After 30-08-2021 Are Not Eligible For Bonus Shares.
Record Date
Record Date Is Always A Trading After The Ex-Bonus Date. On Record Date, We Need To Have The Shares In Our DEMAT Account.
Because On Record Date At The End Of The Day. The Company Will Check The List Of Share Holders And Credit Bonus Shares To Their DEMAT Account.
Generally, It Takes 15 Days From The Record Date For The Shares To Be Credited To Your DEMAT Account.
Understanding Bonus share With Example
For Example, If Tata Motors Is Trading At 200 Rupees And Announces Bonus shares.
Bonus Ratio = 1 : 1
Ex-Bonus Date = 10th October.
Share Price Of Tata Motors = 200Rs.
Before Ex-Bonus Date. If You Have Invested 10 Thousand In Tata Motors, You Will Get 50 Shares.
The Bonus Ratio Is 1: 1 Means, One Free Share For Every One Share Held. So You Will Get 50 Shares As Bonus. Now The Total Shares Will Be 100.
But On Ex-Date The Share Price Of Tata Motors Will Start Trade At 100Rs. Initially, You Invested 10 Thousand And Got 50 Shares, Each Share Price Is 200 Rupees, So a total of 50 X 200 = 10 Thousand. After Bonus Shares Your Total Shares Will Be 100 And The Stock Price Will Drop To 100 Rupees On Ex-Date, So 100 Shares X Share Price ( 100 ) = 10 Thousand Rupees.
Finally, After Bonus Shares Your Total Investment Value Will Not Increase. Instead of the Number Of Shares Will Increase.
For Example, If The Bonus Ratio Is 3: 1 Means For Every 1 Stock You Will Get 3 Free Stocks. So In This Case On Ex-Bonus Date The Stock Price Will Start Trading At 50 Rupees.
If You Got Free Shares Also, On Ex-Bonus Date The Price Of The share Will Be Adjusted As Per The Bonus Ratio. Your Investment Amount Will Be Same As Before The Bonus Shares, But The Number Of Shares Will Increase.
Then What Is The Use Of Bonus shares ?
You Might Think Even If We Get Free Bonus Shares There Is No Use As The Price Of The Share Is Adjusted On Ex-Bonus Date.
But Bonus Share Is A Positive News For The Share Holders Because After Bonus Shares The Price Of The Share Is Reduced. Which Will attract New Investors. As It Is Trading At Low Price.
If The Price Of The Share Is Higher Retail Investors Participation Is Very Low. Due To Bonus Shares, The Price Will Be Reduced. So It Will Increase The Retail Participation. And The Demand Increases, As Demand Increases The Price Also Increases.
After Bonus, The Number Of Shares Also Increases. Which Will Increase The Liquidity.
Eligible For Bonus share
To Eligible For Bonus Shares, You Can Buy Shares On Any Date Before Ex-Bonus Date But Need To Hold Till Ex-Bonus Date. If You Sold On Ex-Bonus Date Also You Are Eligible For Bonus Shares.
Not Eligible For Bonus Share
If you Bought On Or After The Ex-Bonus Date.
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