Free shares, same value

Watch the squares, then the total.

A company gives its shareholders **free** extra shares. Watch the count, then the price, then the total.

More shares, lower price, **same** total. The company was cut into more pieces; it didn't get any bigger.

How a bonus issue works

• Free shares a stock dividend — The company gives extra shares to existing shareholders at no cost, out of its **reserves**. No cash changes hands.
• The ratio new : held — **2:1** means 2 new shares for every 1 you hold. Own 100, get 200 more: 300 in all.
• Why do it? a lower price per share — When a share's price is very high, it's hard for small investors to buy one. More shares at a lower price makes it easier.

Like dividends, a bonus has an announcement date, an **ex-bonus date** and a **record date**. Own the shares before the ex-date to qualify.

Slide the bonus ratio

Slide the ratio.

You own **100 shares** at **₹600**: ₹60,000 in all.

**Remember:** shares × price stays the same. Every shareholder gets the same ratio, so your slice of the company doesn't change either.

Example prices; in practice the market sets the price after the ex-bonus date.

Bonus or dividend?

• Cash dividend money out of the company — Cash leaves the company and reaches you. The share price usually drops by about the dividend.
• Bonus shares no money moves — You get more shares; nobody pays anything. The price drops so that your total value stays the same.

**Remember:** a bonus is sometimes called a "stock dividend", but it doesn't hand you any cash.

Check — Question 4 of 4

After a bonus issue…

What you now know

• A bonus issue gives existing shareholders free shares, from the company's reserves.
• A 2:1 ratio means 2 new shares for every 1 you hold.
• Shares go up and the price goes down; your total value stays the same.
• Everyone gets the same ratio, so your slice of the company doesn't change.
• Companies do it to make each share cheaper and easier to buy.