The share market is a very exciting place. Of course, it goes up and down. However, when we talk about returns, you might not want to miss investing in the share market! However, is the share market only about returns through capital appreciation? No. There’s more. And one of them is bonus issues. We cover these topics during our share market training. However, this blog will give a basic understanding of what bonus shares are, how they work and what are their advantages for investors.
What are Bonus Issues or Bonus Shares?
As the name suggests, bonus shares are additional shares a company gives to its existing shareholders. The company provides bonus shares when it cannot pay a dividend to its shareholders even after earning good profits in a particular quarter. However, you must note that investors get bonus shares as per their existing shares in the company.
Types of Bonus Shares
Bonus shares are of two main types – fully paid and partially paid. Let’s look at both.
- Fully Paid Bonus Shares: These are for shares for which the shareholder has already paid the entire amount at the time of issuance. When a company gives fully paid bonus shares, it doesn’t need any further payment from its shareholders.
- Partially Paid Bonus Shares: These are for shares for which the shareholder has paid only a portion of the total amount due. So, such shareholders will get bonus shares but they will have to pay to fully own them. Companies usually inform about additional payments at the time of issuance.
Now, you must be thinking about how bonus shares actually work. Here’s more to it.
How Bonus Shares Work?
As mentioned earlier, companies give bonus issues in a particular ratio. For example, if a company issues bonus shares in a 2:1 ratio, you will get two shares for every share in your portfolio. Thus, if you have 100 shares in a company, you will get 200 bonus shares.
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Why Do Companies Issue Bonus Shares?
Now, why do companies issue bonus shares? As an investor, you must know why companies issue them. Here are some reasons.
- Increasing Shareholder Value: Companies give rewards to shareholders. It helps increase the total number of shares shareholders hold.
- Easier Buying and Selling: These shares increase a company’s total number of shares. It helps make investors buy and sell the stock easily.
- Share Price Adjustment: Bonus issues reduce share price and make shares more affordable to small investors.
- Long-Term Investment: Bonus shares give shareholders a reason to hold the shares for a long time. It reduces stock price ups and downs.
Benefits of Bonus Issues for Investors
Companies have their unique reasons for issuing bonus shares. However, what makes bonus issues attractive to investors? Let’s look at some reasons.
- More Shares: Bonus issues increase an investor’s number of shares. It helps increase the investment amount and makes it easier to buy and sell shares.
- Long-Term Investment: Bonus shares promote long-term investments. Investors can benefit from the long-term growth and returns of a company.
- Tax Exemptions: Investors do not have to pay taxes while receiving bonus shares.
- Higher Dividend Payments: Investors who have bonus issues get more dividends because they have more shares than others.
Important Aspects of Bonus Issues
Bonus issues have a few unique terms associated with them. These include the below.
- Record Date: It is the cut-off date a company sets to decide if a particular shareholder is eligible for bonus shares. All shareholders with shares in their Demat account on the record date receive bonus shares.
- Ex-Date: This is a date two trading days before the record date. It means an investor must buy the shares at least one day before the ex-date to be eligible to receive the bonus shares.
- Cum-Bonus: This is the set of eligible shares between the date of announcement of the bonus issue and the record date.
- Ex-Bonus: Ex-bonus date is the last day to buy a company’s shares to be eligible for a bonus share issue.
Overall, receiving bonus shares benefits from the long-term point of view. Thus, one aspect you may look for while assessing a company’s shares is the issuance of bonus shares. However, how do you know if a company does it and if it is good to invest in it? The answer is taking up stock market trading courses at Wealth Note!
Our share market training, including an option trading course, helps you analyze companies, and their shares and make informed and profitable decisions. Besides, we also serve you as your investment guides, helping you identify profitable stocks and grow your wealth based on your financial goals. Additionally, our support which includes mutual fund management, bonds and debentures, portfolio management, etc., helps you become better and more profitable investors.
If you want to begin your exciting journey in the stock market, call us at +91 70666 66464 and allow our experts to explain everything.