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When Will I Receive Additional Share With New Face Value

29 Nov 2023

Whether you are a budding investor or have been in the market for some time, understanding all the elements of investing is crucial. While there are some things that everyone learns with experiences, some concepts should be learnt so that one can make well-informed financial decisions and sidestep common mistakes. Making the most of the corporate actions that companies may often take is one such aspect that you, as an investor, should be well aware of.

Stock splits and bonus shares are common corporate actions that are naturally well-received by shareholders. Both of them bring stocks within a more affordable trading range and thus are quite popular. Bonuses go a long way in making investors more attracted and interested in a company’s stocks. Over time, it can prove rather profitable for the company to take such actions.

Bonus Share

Sometimes, despite a positive turnover, a company is unable to pay its shareholder in the form of cash dividends, so it issues additional shares. This is a bonus and thus these shares are called bonus shares. Given without any additional cost, the bonus shares are issued as per the number of shares already owned by the shareholder.

Let us take a look at this example -- suppose Rahul Batra holds 200 shares of Company XYZ, which declares a 4:1 bonus. According to this announcement, for every 1 share that Rahul holds, he will now receive 4 free shares. For Rahul, the total shareholding would increase from 200 to 1000.

In this way, it is quite clear that the bonus issue is a corporate action that is taken by companies to boost retail participation and enhance their equity base. Companies that have very high stock prices might make it difficult for investors, especially new investors, to be able to buy the stocks.

Face Value: The meaning and importance

Face value refers to the original value of the share. It is stated by the issuer when the firm/ company starts issuing bonds/ shares and remains fixed when publicly traded firms provide stocks through Initial Public Offerings, better known as IPOs, while the premium/discount amount would vary. When it comes to stocks, the value is the original value and is mentioned on the certificate.

It should be noted that the face value of a stock is generally far less than its current market value, often just 1% of the market value. So, when you are planning to buy a company’s stocks, make sure you do not assume that the face value is the amount that you would be paying.

Eligibility for Bonus Shares

When the announcement of a bonus share is done, the trading remains open. New shareholders are constantly added and deleted. In such a scenario, one may wonder how companies determine the shareholders’ identity. The company’s bookkeepers now come into play. They verify the record dates to identify the shareholders on the basis of the ex-date. The ex-date is basically the last day when you can buy the company’s stocks and be eligible for bonuses.

When will I receive the additional shares as per the new face value?

It generally takes about 2-3 working days from the ex-date to credit the additional shares. In India, the delivery of shares into the Demat account happens 2 days post the date of trading. So, if you are an existing shareholder before the ex-date as well as the record date, you would be eligible to receive the company-issued bonus shares. Keep in mind that the stocks that are purchased after the ex-date would not qualify for the issuance of bonus shares. This is because the possession of the stocks is not gained by you before the record date.

Once the bonus shares get the new ISIN, International Securities Identification Number, they would be credited to your Demat account within a period of 10 to 15 working days. You may receive an email or an SMS as a notification about the same. By logging in to your online Demat account, you can check your statement and the delivery of the bonus shares.

Conclusion

Issuing bonus shares is called capitalisation of the company’s reserves, as they work towards improving the company’s liquidity. As an investor, you may consider receiving bonus shares quite favourable as once bonus shares are announced, the company share prices typically appreciate. However, once the number of outstanding shares increases following the bonus issue, the share price decrease proportionately, which increases the affordability and investor base.

 

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