Introduction

When a company makes surplus profits and instead of distributing the earnings as dividends, decides to reinvest those gains in the company, they do so by issuing you, the shareholder, bonus shares. Bonus shares are a win-win situation for you and the company because you get extra shares for free, and the company gets to show its strong financial health to its potential investors.

As we enter 2025, a number of companies have announced bonus shares for their patrons; let us take a brief look at them. But before that, we will simplify the concept of bonus shares and understand how they are calculated.

Simplifying Bonus Shares

Bonus shares are a means for the company to attract new investors by highlighting its robust finances and rewarding its current customers by offering them more shares. This practice is more beneficial for the company than giving dividends, as bonus shares enable them to reinvest in their own business. Bonus shares boost a company's outstanding stock but not its market cap.

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How Does it Affect You as a Shareholder?

As a shareholder, you get additional shares free without any extra cost. You are awarded shares based on the number of shares you currently own. It is typically a 1:1 ratio, so for each share you get an additional share for free, but the ratio can change depending on the company. Though you may own more shares, their market value remains the same. The price of the shares adjusts to represent the renewed number of shares.

For example, if you own 200 shares that are each worth ₹400, a 1:1 bonus issue would give you 400 shares in total, but each would be worth only ₹200. This ensures that the total value of your shares would still remain the same.

After you are issued the bonus shares, it takes about 15 days for the entire process to complete after the ex-date. Once the bonus shares are reflected in your demat account, you are free to sell your shares. However, any profit you make from this sale has short-term capital gains implications.

Here are a few things you need to be careful about:

• Tax implications: Bonus shares may have tax implications; it is best to discuss with your tax consultant to understand the consequences of bonus shares.
• Dividend value: The payout value of your future dividends may get reduced as it will get split over the sheer number of shares you own.

Upcoming Bonus Shares

If you own shares of any of the following companies, you can gear up to earn bonus shares.

• The Company name here refers to the company that has announced the bonus shares.
• The announcement date is when the company announces they will be giving out bonus shares to their shareholders.
• The ex-date is until what day you can buy the shares to receive bonus shares. Indian settlement cycles are T+1; therefore, the ex-date is usually a couple of trading days preceding the official date.
• Bonus ratio of 2:1 denotes you get two free shares for every one share held. The first digit is the number of free shares you get for every share held (which is the second digit.)

Pros of Bonus Shares

• Better Liquidity: Because more shares are in circulation, trading activity increases, which gives you better liquidity.
• Encouraging for Investors: Bonus problems may indicate that a business is doing well financially, which can encourage you to buy more stocks.
• Affordable: By drawing in more investors, the post-bonus share price reduction may make the stock cheaper.

Conclusion

The January 2025 bonus share issuance allows you to enhance your stakes in these companies. Before investing, you must examine the company's financial health, economic conditions, and your own investment goals. Staying educated and engaging financial professionals can enable smart investment decisions.

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