Bonus Share News: Everything You Need to Know About

What Are Bonus Share News?

Bonus share news are additional shares given to existing shareholders without any extra cost, based on the number of shares they already hold. Companies issue these shares as a way to reward shareholders while utilizing their retained earnings. This process helps in increasing the liquidity of shares and making them more attractive to investors.

Why Do Companies Issue Bonus Share News?

Companies issue bonus shares for several strategic reasons, including:

• Enhancing Shareholder Confidence: By issuing bonus shares, companies reward loyal investors and encourage long-term investment.
• Increasing Liquidity: More shares in circulation improve trading volumes, making the stock more accessible to retail investors.
• Capital Restructuring: Bonus shares help adjust the share capital structure without affecting cash flow.
• Sign of Financial Strength: It signals that the company has strong reserves and a positive outlook on future earnings.

How Does a Bonus Share News Work?

The bonus share issuance follows a structured process:

• Board Approval: The company’s board of directors proposes a bonus issue.
• Shareholder Approval: Shareholders vote on the proposal in a general meeting.
• Record Date Declaration: The company announces a record date to determine eligible shareholders.
• Issuance of Shares: Bonus shares are credited to shareholders’ Demat accounts proportionally.

For example, if a company announces a 2:1 bonus issue, it means shareholders will receive 2 additional shares for every 1 share they hold.

Recent Bonus Share Announcements

1. Declares a 1:1 Bonus Issue

It has announced a 1:1 bonus share issue, meaning for every share owned, shareholders will receive an additional share at no extra cost. This move aims to boost market confidence and enhance trading liquidity.

2. Approves 3:2 Bonus Shares

Another recent announcement comes from it, which declared a 3:2 bonus issue, where investors receive 3 bonus share news for every 2 held. This reflects the company’s strong financial performance and commitment to rewarding shareholders.

Benefits of Bonus Shares for Investors

Investors can benefit from bonus shares in several ways:

• Increased Holdings: Investors receive additional shares without additional investment.
• Capital Appreciation: A larger number of shares can lead to increased capital gains over time.
• Higher Liquidity: More shares in circulation increase trading activity.
• No Tax on Receipt: Investors do not pay taxes upon receiving bonus shares; taxation applies only when they sell the shares.

Impact of Bonus Share News on Stock Price

While issuing bonus shares increases the number of shares, it usually results in a proportional decline in stock price. However, this does not affect the company’s total market capitalization. Over time, with strong financial performance, the stock price tends to appreciate again. For example, if a stock is trading at ₹1000 per share and a company issues a 2:1 bonus, the adjusted price per share post-bonus would be approximately ₹333.33, though total investment value remains unchanged.

How to Check Eligibility for Bonus Shares

To be eligible for bonus shares, investors must own the company’s stock before the record date. The eligibility criteria include:

• Holding shares in a Demat account before the ex-bonus date.
• Being a shareholder on the record date set by the company.

Should You Buy Stocks Before a Bonus Issue?

Investing in a stock right before a bonus issue can be a strategic move if the company has strong fundamentals. However, keep in mind:

• Stock price may adjust post-bonus.
• Company’s growth potential matters more than the bonus issue itself.
• Bonus shares do not offer immediate financial gain unless the stock appreciates later.

Conclusion

Bonus shares are an attractive reward mechanism used by companies to distribute profits while boosting shareholder confidence. They do not provide instant financial gain but can enhance long-term wealth creation. Investors should analyze the company’s fundamentals and growth potential before making investment decisions related to bonus share announcements.

Frequently Asked Questions (FAQs)

1. Are bonus shares taxable?

No, investors do not pay tax on receiving bonus shares. However, capital gains tax applies when they sell the shares.

2. Do bonus shares affect dividend payouts?

Yes, since bonus shares increase the number of outstanding shares, dividends per share may be lower if the total dividend payout remains unchanged.

3. Can I sell bonus shares immediately?

Yes, once credited to your Demat account, you can sell bonus shares like regular shares.

4. How does a bonus issue impact a company’s fundamentals?

A bonus issue does not impact the company’s fundamentals, as it only redistributes retained earnings into share capital.