Recently, Bharat Electronics Limited (BEL) issued bonus shares. This is indeed happy news for shareholders. But hold your horses because not everyone will get a bonus share! The ones who are eligible will only be offered a bonus share.
Bonus shares are the additional shares you get if you are already holding the shares of a company. For example, BEL has declared a bonus share in the ratio of 2:1. This means that if you own one share of BEL, the company shall give you two additional shares as a bonus.
One thing to note here is that the company’s equity share capital remains unchanged while the number of outstanding shares increases.
To understand this better, let’s take an example. Suppose a company’s share price is trading at Rs 100. The number of outstanding shares of the company is 10 lakh. So, the company’s equity share capital becomes (100 x 10,00,000) Rs 10 crores.
Now, the company issues a bonus share in the ratio of 1:1; then, the company’s equity capital will still remain at Rs 10 crores, but the number of shares has doubled from 10 lakh to 20 lakh.
What do you think will happen to the stock price?
Yes, you guessed it right. The stock price will now be Rs 50 instead of Rs 100 as it will accommodate the change.
If you buy the share a day before the bonus shares are to be allotted, then, unfortunately, you won’t get a bonus share.
So, who gets a bonus share? It depends on the record date and the ex-date. The record date is the date by which you must have the share in your Demat account. For instance, BEL has considered 16th September as the record date. Shareholders will only be eligible for the bonus share if they have BEL in their Demat account until September 16, 2022.
Ex-date is one day before the record date. This means that if you bought the shares on the ex-bonus date, the bonus share would not be given to you but to the seller. So, if you purchased BEL on 15th September 2022, the seller will get the bonus share instead of you.
Benefits of Bonus Shares
- Due to the bonus issue, the price of the share decreases and the stock becomes more liquid.
- As the share price reduces, the share becomes affordable and attractive investment option for retail investors.
- As investors get a share as a bonus, it improves the company’s image in the eyes of existing shareholders.
We hope this article helped you understand bonus shares better.
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* The stock mentioned in the article is for informational purposes. This is not investment advice.