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Split v/s bonus:

 people ask questions regarding bonus v/s split.

There is lot of confusion among many investors. As both stock split and bonus shares results in increase in quantity of stocks and adjustment of share price many don’t understand the difference between them.


Bonus share:

A company reward its investors either by dividends or by bonus shares. The company pays for dividend or bonus shares from their reserve cash. Bonus shares takes out more money from the reserve than dividends. Generally a company issues bonus shares to increase liquidity. When the stock price increase too much it becomes expensive for many small investors. Offering bonus share to increase the number of outstanding shares and reduces the price  that makes it more affordable for small retail investors. Issuing of bonus shares also increases the confidence of investors in the company as its rewarding them.

Example: ABC company having face value of 10Rs.and market price is 500 Rs.and you have 100 shares of ABC company

Company announces bonus of 1:1 to stock holders

Now, on bonus date  you will get another 100 shares,so 200 shares in your hand now

While,price will be reduced to 250 on bonus date.

So you will have 200 shares of face value of 10 after getting bonus!  




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Split share:

In  stock split,fundamentals about the company does not change, the issued share capital remains the same, the revenue remains the same, and the profit remain the same too.

Only face value gets changed. If the same company goes for stock split from the face value of 10 to the face value of 5.  The number of shares will get double and the price will also adjusted to half.

Example:

XYZ company having face value of 10Rs.and market price is 500 Rs.and you have 100 shares of ABC company

Company announces split of 10:5 to stock holders

Now, on effective date  you will get another 100 shares,so 200 shares in your hand now

While,price will be reduced to 250 on bonus date.

So you will have 200 shares of face value of 5 after getting split shares!


Remark:

Bonus share is considered more positive as compare to split as it shows that company is confident of more earning in the future, that’s why it can afford to issue more shares for free to investors by reducing its reserve capital

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Split v/s Bonus

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