2) Bonus shares are considered beneficial for long-term shareholders of the company looking to multiply their investment. 3) Bonus shares are free of cost to shareholders as they are issued by the company, which increases the outstanding shares of an investor in the company and enhances the liquidity of the stock.
It is a very common phenomenon: novice investors demand bonus shares from company management, as they believe that more bonus shares would increase the value of their investment. On the contrary, bonus shares usually do not add value, unless the company issuing the bonus shares increases the dividend payout per share.
(1) Immediately Realizable: Bonus shares can be sold in the market immediately after a shareholder gets it. ADVERTISEMENTS: (2) Not taxable: Bonus shares are not taxable.
The disadvantages of issuing bonus shares are:
1) To the company – as issue of this may lead to increase in capital of the company. 2) Shareholder expect existing rate dividend per share to continue. 3) It also prevents the new investors from becoming the shareholders of the company.
By Issuing bonus shares the number of outstanding shares in the market increases and at the same time value of each share decreases according to the bonus issue ratio but if more demand generates the share price can rise more than the decided post bonus price.
11.3 – Bonus Issue
A bonus issue is a stock dividend, allotted by the company to reward the shareholders. The bonus shares are issued out of the reserves of the company. … When the bonus shares are issued, the number of shares the shareholder holds will increase, but an investment’s overall value will remain the same.
Companies issue bonus shares to encourage retail participation and increase their equity base. When price per share of a company is high, it becomes difficult for new investors to buy shares of that particular company. Increase in the number of shares reduces the price per share.
Thus you have to purchase one day before the Ex-date i.e. 25/06/2019. If 25/06/2019 happens to be a non-trading day then you have to purchase it on 24/06/2019 to be eligible to receive the bonus. Therefore, if you purchase the share one day prior to Ex-date, you get the bonus share.
Is bonus issue good or bad?
Since bonus issue leads to an increase in the outstanding shares, the per share metrics – book value, earnings, dividends etc and share price, all get adjusted (downwards) depending upon the ratio that the company has announced. It is obvious that a bonus issue does not guarantee improved fundamentals for a firm.
For Bonus shares to be credited to your DEMAT account it generally takes 15 days from the record date, but this depends on the RTA (Registrar & Share Transfer Agents). You will receive a notification from CDSL as below when your bonus shares get credited to your DEMAT.
A bonus issue is when current shareholders are granted an additional share, whereas a stock split is when the same share is divided into two or more shares according to the split ratio. Existing shareholders benefit from bonus shares, and stock splits benefit both existing shareholders and new investors.