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What are Bonus Shares? From types and advantages to risks, all you need to know

Explore bonus shares: their eligibility criteria, types, advantages, and risks associated with bonus shares issues

Published: Jan 18, 2024 04:46:41 PM IST
Updated: Jan 18, 2024 04:48:36 PM IST

What are Bonus Shares? From types and advantages to risks, all you need to know

Bonus shares, or "scrip dividends" or "capitalisation issues," are additional shares a company issues to its existing shareholders. These shares are distributed at no extra cost to the shareholders.

Bonus stock is a way for a company to reward its investors and show appreciation for their continued support.

Companies issue bonus shares to capitalise on their reserves or accumulated profits, converting them into additional shares. Shareholders receive these bonus shares in proportion to their existing shareholdings.

While bonus share issues do increase the number of shares an investor holds, they do not affect the overall ownership percentage in the company. This means that your proportional ownership stake remains the same even though you have more shares.

Bonus stock can enhance an investor's portfolio without requiring additional investment. However, investors should also be aware of potential risks when incorporating bonus shares into their investment portfolio.

Bonus shares issued by companies in 2024

In the table below, we provide a list of companies that issued bonus stock in 2024 and the bonus ratio, with data sourced from Moneycontrol.

Company Bonus Ratio Record Date Ex-Bonus Date
Sinclairs Hotel 1:1 29-01-2024 29-01-2024
SBC Exports 1:2 19-01-2024 19-01-2024
MK Exim 1:2 17-01-2024 17-01-2024
Newgen Software 1:1 12-01-2024 12-01-2024
Integra Essenti 1:1 11-01-2024 11-01-2024
Specular Market 01:50 06-01-2024 05-01-2024
Allcargo 3:1 02-01-2024 02-01-2024

Who is eligible for bonus shares issue?

Existing shareholders of the company are typically eligible for bonus shares issue. Eligibility criteria are outlined by the company issuing these additional shares. Typically, shareholders must have the company's shares on or before a predetermined "record date." Purchases made after this date do not qualify for the bonus stock.

Additionally, the eligibility criteria may differ for different classes of shares, so shareholders should ensure they hold the appropriate class.

Companies issuing bonus stock are also obliged to comply with relevant legal and regulatory requirements, which may influence eligibility.

To ascertain one's eligibility for bonus shares, shareholders should closely follow the company's official announcements and documentation to understand the precise requirements for receiving these additional shares.

Types of bonus shares issue

Bonus shares come in two primary categories: fully-paid bonus stock and partly-paid up bonus stock. Let’s understand the difference between these two:

Fully-paid bonus share

Fully-paid bonus stock refers to additional shares a company distributes to its existing shareholders without any additional payment required. These bonus shares are issued entirely free of charge to eligible shareholders. The term "fully paid" signifies that the shareholders are not required to make any further financial contribution to acquire these bonus shares.

Partly paid-up bonus share

Partly paid-up bonus stock is slightly different from fully paid bonus shares. These partly paid-up bonus shares are issued at a partially paid value, which means shareholders may need to make a partial payment to acquire them. The company typically specifies the amount or percentage of the share's nominal value that shareholders must pay to become the rightful owners of these bonus shares.

Advantages of bonus shares issue

Investors are often drawn to bonus shares for several compelling reasons:

  • Enhanced portfolio: Bonus shares increase the number of shares held, which, in turn, can diversify and enhance an investor's portfolio.
  • Low cash outflow: Bonus shares involve low or zero cash outflow for existing shareholders.
  • Increased market value: Although the proportionate ownership remains the same, the market value of the investor's holdings increases due to the bonus shares.
  • Loyalty reward: Companies use bonus shares to reward loyal and long-term shareholders.

Risks of bonus shares issue

While bonus shares offer various advantages, it's crucial to be aware of the potential risks of bonus shares:

  • Market fluctuations: The market value of bonus shares is subject to the same market forces as regular shares. They can rise or fall based on market conditions.
  • Dilution: Although investors receive additional shares, their ownership percentage in the company remains the same, potentially diluting their stake.

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