Understanding Bonus Issues: How Bonus Shares Benefit Investors

Bonus Issue or shares are an exciting way for companies to reward their existing shareholders! When a company performs well but prefers to reinvest its profits rather than pay cash dividends, it may issue bonus shares instead. Let’s dive into what bonus shares are, how they work, and why they matter.

Bonus Issue are additional shares given to existing shareholders at no extra cost, based on the number of shares they already own. Essentially, these shares come from the company's accumulated profits, which are converted into free shares rather than being distributed as cash dividends.

When a company issues bonus shares, it increases the number of shares available in the market without changing the overall market capitalization. For example, if you own 100 shares and the company declares a bonus issue of 1:2 (meaning one bonus share for every two shares owned), you would receive 50 additional shares, bringing your total to 150.

• Bonus Ratio (1:2): For every two shares you own, you receive one bonus share. If you own 200 shares, you'll get 100 bonus shares (200 * 1/2)
• Announcement Date (31-Aug-24): This is the date when the company officially announces the bonus shares
• Record Date (07-Oct-24): Shareholders who own shares on this date in their Demat account will receive the bonus shares as per the decided ratio
• Ex-Bonus Date (07-Oct-24): This is the cut-off date after which the stock starts trading without the bonus issue value
• Credit Date (31-Oct-24): This is when the bonus shares will be credited to your Demat account

Companies typically issue bonus shares when they have large reserves or profits but do not want to distribute cash. This could be because they want to reinvest the cash back into the business or simply because they want to reward their shareholders without reducing their cash reserves.

To receive bonus shares, you must own the company’s shares before the record date and ex-date. If you buy shares on or after the ex-date, you will not qualify for the bonus shares.

• Fully Paid Bonus Shares:  These shares are issued at no extra cost to shareholders. They come from various reserves like profits and capital reserves.
• Partially Paid Bonus Shares: These are shares that shareholders have partially paid. When bonus shares are issued for these shares, they become fully paid.

For Investors:

• Tax Benefits: Receiving bonus shares is not taxable.
• Cost-Free: They increase your holdings without requiring additional investment.
• Trust Building: Bonus shares can enhance investor confidence in the company’s management and profitability.

For Companies:

• Enhanced Value: Issuing bonus shares can improve the company's market perception.
• Increased Liquidity: More shares in the market can improve trading activity.

For Investors:

• Reduced Earnings Per Share (EPS): Although you have more shares, the overall profit remains the same, which may dilute the EPS.

For Companies:

• No Cash Inflow: Issuing bonus shares doesn’t raise any money for the company.
• Increased Obligation: Frequent bonus issues may lead to a long-term burden if investors expect dividends.

Bonus shares are a great way for companies to reward their shareholders without affecting their cash flow. By issuing additional shares based on existing ownership, companies not only enhance their share capital but also reflect their financial strength. For investors, bonus shares can be a great addition to their portfolio, provided they understand the implications.

By keeping an eye on important dates and understanding how bonus shares work, you can take advantage of this rewarding corporate action! Always check the corporate actions history of a company before investing so you can stay well informed.


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