InvestorQ : what is the difference between stock split and bonus. How it effect the share price???

# what is the difference between stock split and bonus. How it effect the share price???

2 months ago
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Well, both have a similarity that shareholders do not pay anything extra to get those additional shares.

Share Split:
In a stock split, what generally happens is that the existing shares get split into furthermore shares. Due to this, the paid-up value of a share is reduced and, the total number of outstanding shares of a company gets increased.
For example, A company has 50,000 shares outstanding of Rs 100 each and it wants to apply a share split. So, it decides to convert the existing shares of Rs 100 each into 5 shares of Rs 20 each.

In this case, the split ratio is 5:1 as shareholders get 5 shares for their existing 1 share. So, the total outstanding shares after share split would be = 50,000*5 = 2,50,000 shares @ Rs 20 each.
Suppose, before the split, a shareholder had 200 (@ Rs 100 each) shares of that company, so after the share split, he will have = 200*5 (split factor) = 1000 shares @ Rs 20 each.

Bonus Issue:

Under this, a company issues share to its existing shareholders free of cost. Bonus shares are generally provided as an alternative to dividend payment out of the accumulated reserves of the company.
For example, a shareholder has 1000 @ Rs 10 shares of a company and the company announced a bonus issue in the ratio 3:1. It means, 3 shares will be given for 1 share. In that case, the shareholder will have = 1000*3/1 = 3000 shares @ Rs 10 in total. So, there will only be changes in the total number of shares held and not the face value of shares under the bonus issue.
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