Upcoming Bonus Shares in 2023: How They Work & Key Terminologies

A bonus share is a share of stock that is issued by a company to its existing shareholders without any additional cost. The company does this by capitalizing a part of its retained earnings or share premium account. This means that the company is using its own profits to issue new shares to its shareholders.

Upcoming Bonus Shares in 2023: How it works?

Imagine you have some shares in a company called ABC. The company decides to give you an extra share for every share you already have that is in a 1:1 bonus ratio. So, if you had 5 ABC company shares, they'll give you 5 more for free. But, they also make the share prices a bit lower to keep the total value the same.

For example, if the total value of your 5 shares was Rs 100 before, even after you get the extra shares, the total value will still be Rs 100. So now you have a total of 10 shares, but they are each worth a bit less. This way, the total value of your investment doesn't change.

So, if each share was worth Rs 20 before, now they might be worth Rs 10 each. Companies do this when they want to make their shares more affordable for people to buy, and it can also help the company's image with regular folks who own their shares.

Upcoming Bonus Shares in 2023: Bright Side of Bonus Shares

• An increase in the number of shares held can lead to an increase in voting power and dividend income.
• A reduction in the average cost per share can be beneficial if the share price subsequently increases.
• There is a boost to the liquidity of the stock, as there are now more shares available to trade.

Upcoming Bonus Shares in 2023: Dark Side of Bonus Shares 

• There is a dilution of existing shareholder's equity, as the company is issuing new shares without any additional capital being raised.
• There is a decrease in the share price, as the increased supply of shares can outweigh the demand.

Upcoming Bonus Shares in 2023: Companies to Lookout

Upcoming Bonus Shares in 2023: Key Terminologies

• Bonus ratio: This is the number of bonus shares that a shareholder will receive for every existing share held. For example, a 1:1 bonus ratio means that for every existing share held, the shareholder will receive one bonus share.
• Ex-bonus date: This is the date on which the bonus shares will be issued to shareholders. On this date, the shares will trade without the right to receive the bonus shares.
• Record date: This is the date on which the company will determine the shareholders who are eligible to receive the bonus shares.
• Effective date: This is the date on which the bonus shares will be credited to the shareholders' accounts.