Bonus Shares

Bonus shares are additional shares that a company issues to its existing shareholders without any additional cost, based on the number of shares that a shareholder already owns. This is often done in place of paying dividends and is a way for companies to distribute accumulated earnings back to their shareholders.

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List of Upcoming Bonus Shares in 2024

    CompanyBonus RatioAnnouncementRecordEx-Bonus
    Filtra Consultants & Engineers Ltd1:304-07-202413-07-202412-07-2024
    Alphalogic Techsys Ltd14:4804-07-202413-07-202412-07-2024
    Alliance Integrated Metaliks Ltd2:101-07-202411-07-202411-07-2024
    Clara Industries Ltd4:101-07-202408-07-202408-07-2024
    Vertoz Advertising Ltd1:128-06-202405-07-202405-07-2024
    Remedium Lifecare Ltd3:126-06-202406-07-202405-07-2024
    Kaycee Industries Ltd4:101-07-202406-07-202405-07-2024
    GPT Infraprojects Ltd1:121-06-202403-07-202403-07-2024

    What Are Bonus Shares?

    Bonus shares, also known as a scrip dividend or a capitalization issue, are issued by a company to its shareholders free of charge. They are given in proportion to the shares already held by shareholders. For example, if a company issues bonus shares in the ratio of 2:1, shareholders receive two additional shares for every one share they own.

     

    Purpose of Issuing Bonus Shares

    Companies issue bonus shares for several reasons:

    - To Enhance Market Perception: Issuing bonus shares can make a stock more affordable and increase market interest.

    - To Retain Earnings: By issuing bonus shares, companies can use their retained earnings without affecting their cash flow.

    - To Improve Liquidity: Bonus shares increase the number of shares in the market, improving liquidity.

     

    How Bonus Shares Work

    When a company announces a bonus issue, it specifies a record date. All shareholders who hold the company's shares on this date are eligible for the bonus shares. The company also specifies the ratio of bonus shares to existing shares.

     

    Example

    Suppose a company declares a 1:2 bonus share issue, meaning one bonus share for every two existing shares. If you own 200 shares of the company, you will receive 100 bonus shares. After the bonus issue, you will have a total of 300 shares.

     

    Benefits of Bonus Shares

    - Increased Shareholding: Shareholders get more shares without any additional investment.

    - Signal of Good Health: A bonus issue indicates the company has sufficient retained earnings and is in good financial health.

    - Market Value Adjustment: Bonus shares can help adjust the market value of a company’s shares, making them more accessible to small investors.

     

    Tax Implications of Bonus Shares

    In most jurisdictions, bonus shares are not taxable when they are received. However, the sale of bonus shares may attract capital gains tax. The cost of acquisition for bonus shares is usually considered zero, and the holding period for tax purposes starts from the date of allotment of bonus shares.

     

    Risks and Considerations

    While bonus shares can be beneficial, they are not without risks:

    - Dilution of Share Value: The issuance of bonus shares increases the total number of shares, which can dilute the share price.

    - No Immediate Cash Benefit: Unlike dividends, bonus shares do not provide immediate cash benefits to shareholders.

    - Tax on Sale: The sale of bonus shares can result in capital gains tax, which investors need to consider.

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    Frequently Asked Questions

    Companies issue bonus shares as a way to reward shareholders without distributing cash dividends. It capitalizes a part of the company's retained earnings into equity capital.

    Bonus shares are different from stock splits. In a stock split, the number of shares increases, but the overall value of the investment remains the same. With bonus shares, shareholders receive additional shares for free, increasing the number of shares they hold.

    Bonus shares are issued by a company's board of directors after obtaining approval from shareholders. The company allocates bonus shares based on the shareholder's existing holdings.

    No, bonus shares do not dilute the value of existing shares. While the number of shares outstanding increases, the value of the company remains the same, so the proportional ownership of each shareholder remains unchanged.

    Yes, bonus shares can be sold immediately after receiving them, just like any other shares. The decision to sell or hold the shares depends on the shareholder's investment strategy.

     

    Yes, companies can issue bonus shares every year, but they must meet certain criteria and obtain approval from shareholders.

    Shareholders should update their records to reflect the additional shares received. They may also consider consulting with a financial advisor to understand the implications of the bonus shares on their investment portfolio.

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