When you invest in a company by purchasing its stocks, you occasionally get rewarded by the company by way of dividends. Dividends are basically the distribution of profits generated by the company to its shareholders. However, there are times when companies may choose to reward their shareholders in ways other than dividends. One such way is through a bonus issue of shares. Wondering what that is? Here’s a quick overview.
When a company rewards its shareholders by issuing more shares for free, it is known as a bonus issue of shares. It is used as a way of thanking the company’s shareholders for reposing faith in it by staying invested. And the amount of bonus shares that a shareholder is eligible for is determined by the company. Usually it is in a 2:1 ratio, which means that for every 2 shares held, a shareholder gets 1 bonus share. However, this ratio can be almost anything, even 5:1 or 1:1 as well.
Here’s something that you should know. Being an investor, you don’t have to do anything to receive bonus shares. In fact, the bonus shares issued by the company are automatically credited to the demat & trading accounts of its shareholders. But then, when are bonus shares credited in demat accounts of shareholders? To get the answer for that, continue reading.
Now, since the shares of a listed company are bought and sold by different individuals every single day, the shareholders of the company also keep changing. Therefore, when the company announces a bonus issue of shares, it also announces a record date. And only those shareholders appearing on the company’s list on this record date would be eligible to receive bonus shares.
Once the company determines the shareholders that are eligible to receive these shares, it proceeds to allot ISINs (International Securities Identification Numbers) to the bonus shares. Upon allotting ISINs to all of the bonus shares, the company credits the same to the demat accounts of its shareholders within a matter of 15 days.
Although the time taken by companies to credit bonus shares into the demat accounts of its shareholders is listed as 15 days, usually, it is credited much earlier thanks to the completely dematerialized and electronic mode of share transfers. If you’re looking to open a free demat account, contact Motilal Oswal immediately. All it takes is a few minutes to get your very own demat account.