If you hold or plan to invest in the shares of a particular company, you must keep track of the news and information related to that company. When you do so, one day you may get an update from the company about the allotment of bonus shares.
When a company allots additional shares to its existing shareholders, such shares are called bonus shares. A bonus share is provided free of cost and is issued in proportion to the already existing shares.
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The decision to bonus issue is a type of corporate action. Other examples of corporate action include dividend declaration, rights issues, amalgamation, buyback, stock split, merger and acquisition, etc.
Corporate actions are decisions taken by companies that have a direct impact on the shareholders. Investors decide whether to buy, sell or hold a stock, based on a variety of factors. Corporate actions are one such factor.
Companies must formally communicate corporate actions to the shareholders. Investors generally receive this type of information through email. The general public, on the other hand, can view the latest corporate actions of any company by visiting the stock exchange’s website.
Being a corporate action, the decision to issue bonus shares is duly informed by the company to the shareholders and the general public.
Apart from the stock exchange web pages and the emails received from the companies, you will get bonus issue information across newspapers and portals. All you need to do is run a Google search. Besides, your broker informs you of bonus issues and other important information, generally through your demat account profile.
The eligibility of any bonus shares depends on the record and ex-date of the company's shareholders. The existing shareholders before the ex-date and record date are eligible for the bonus shares announced by the company. In other words, you must have purchased the shares before the ex-date to gain eligibility for the upcoming bonus issue. Shares of the company bought after the ex-date, will not be eligible for any bonus shares. The record date is also important in deciding the eligibility to receive bonus shares. Only shareholders who are present on the record list prepared on the record date are eligible.
Whether the distribution of shares will be a 1:1 or a 2:3 ratio depends on the number of new shares the company plans to issue. For example, if the company wants to double the number of shares, the bonus share will be issued in a 1:1 ratio.
Sometimes it takes up to 15 days for the Demat account to show the credits of any bonus shares. If you have yet to receive any share in 15 days, you should contact the customer care department for the company.
Bonus shares help in increasing the marketability and demand of the existing company shares, which pushes the price up. Bonus shares also attract investors, as the new tax rule has ensured that investors gain from bonus shares given by the company.