WHAT ARE BONUS SHARES ?

If you're into finance or stock market,or a beginner in stock market, you might have heard a term, "BONUS SHARES ". So today in this very New blog of The Successlogy, we're going to cover everything about Bonus shares. What are bonus shares? How to get bonus shares? What are the advantages or disadvantages of Bonus shares, everything? So, let's begin.

 WHAT ARE BONUS SHARES?

Bonus shares are the additional shares that a company gives to its existing shareholders based on shares held by them. Bonus shares are issued to the current shareholders without charging any extra cost. Let us know why the companies issue bonus shares.

WHY DO COMPANIES ISSUE BONUS SHARES?

When a company is not able to pay dividend to its shareholders due to shortage of fund the company issue bonus shares to its existing shareholders instead of paying dividend. These shares are given to the current shareholders based on their existing holding of shares in the company. Issuing of bonus shares to the current shareholders is also known as Capitalization of profit because it is given from the reserves of the company.

CALCULATION OF BONUS SHARES 

Let us now know how the bonus shares are calculated. These bonus shares are given according to existing stake in the company to existing shareholders. For example, a company declaring one share for four bonus shares would mean that an existing shareholder would get one bonus share for every four shares held. Suppose if a shareholder hold 4,000 of the company shares and the company decides to issue bonus shares then the company will issue 1,000  bonus shares to that shareholder.

Now when companies issue bonus shares to their shareholders, the term “record date” and “ex-date” are also mentioned. Let’s know what these terms mean.

WHAT IS RECORD DATE ?

It is the cut-off date that is set by the company. If you are the existing shareholders of the company then on the cut-off date which is set by the company, you are eligible to receive the bonus share. The company set record date so that they can find eligible shareholders and issue bonus shares to them.

WHAT IS AN EX-DATE?

The ex-date is one day before the record date. Here an investor has to buy the shares at least one day before the ex-date to become eligible for the bonus shares.

ADVANTAGES OF BONUS SHARES

Let us know about the advantages of bonus shares.

1. Investors do not have to pay any tax while receiving bonus shares from the company.

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.

4. Bonus shares help build the trust of an investor in the company's business and operations because they have invested in the company and, in turn, give capital to the investor.

5. The investors will receive higher dividends in future because now they hold a larger number of shares of the company due to bonus shares. 

So, this was it, for Bonus shares. Now you might be confused between Bonus issue and stock split. No worries, we'll cover the topic Stock Split soon in our upcoming blogs mentioning the difference between both of them.

Happy Learning

The Successlogy