Skip to main content

What you should know about Stock Split and Bonus Shares !

masterandstudent-bonus
A stock split is sometimes confused with bonus shares, however it is different from bonus shares. So, what is the difference between these two and which one is better for the investors?

To start with some basics - all publicly-traded companies have a set number of shares that are outstanding on the stock market. These shares are nothing but sub division of capital. So if a company's capital is 100 m divided into 10m shares of 10 each, then this 10 is called the face value of the share.

Stock Split:

A stock split is usually done by companies if their share price increase to levels that are either too high or are beyond the price levels of similar companies in their sector. The move is generally seen to improve the liquidity of scrip since more investors participate due to the smaller ticket size.

A stock split is done to increase the number of shares that are outstanding by issuing more shares to current shareholders. For example, in a 2-for-1 stock split:
  • Two shares for  one share.
  • Face value reduces by the split ratio, i.e., if earlier the face value was 10, after  the split it will reduce to 5 per share.
  • The market price is  affected by a stock split and it will reduce by similar ratio, e.g.,  200 per share becomes 100.
  • The market cap does not change, since the outstanding shares are same.
Important point to note here is there is no financial impact on the stock, due to stock split. Recent stock split done by companies include Titan Industries, VIP Industries and Crisil.

Bonus Shares:

Bonus shares, are given free of cost to the investors. So when you get a bonus share, the number of shares you own increases at no cost to you. A stock split is also like a bonus, but that is where the similarity ends. A bonus is a free additional share whereas a stock split is the same share split into different number of shares.For example, if a company was to issue a 1:1 bonus share:
  • It would increase the amount of shares by 100% (1 share for every 1 share owned).If there are 1 million shares in a company, this would translate into an additional 1 million shares.
  • Face value does not change.
  • The market price changes and the price would reduce by half.
  • The market cap increases, since the outstanding shares increase.
The bottom line is that a stock split is used primarily by companies to provide greater marketability and liquidity in the market. Whereas bonus shares are issued with the intent of rewarding the investor and the  financial effect of bonus share is that it increases the number of shares outstanding and reduces the earnings per share accordingly. Companies like Karur Vysya Bank, Infosys Technologies have rewarded investors with  consistent bonus issues and have performed well on the enhanced equity too.

Comments

  1. That was well explained article.

    ReplyDelete
  2. this post so nice and interesting one to read.

    ReplyDelete

Post a Comment

Popular Posts

Your Bill Amounts Are Going To Increase From June 1, 2016

Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994. Union Finance Minister, Arun Jaitley, in his budget announcements proposed to impose a cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services. The present rate of service tax will be hiked to 15 per cent from June 1, 2016, from 14.5 per cent. Take a look at what gets expensive:



Phone Bills: Your phone bills are going to go up. So, pay a good 15 per cent now on service tax on phone bills.

Restaurant Bills :If you are dining in a restaurant that already has service tax applicable, you are going to pay more on your eating out. Though 0.5 per cent on a single bill may not mean much, frequent diners may end-up paying a lot during the year.

Travelling: You will have to pay more for air travel, as there is a service tax on tour operators and travel agents.

Moneycontrol Terminal - Streaming Live Quotes

Moneycontrol has introduced a new feature Moneycontrol Terminal - an enhanced version of real time price updates. Though there were live quotes provided by the website previously, the present form  gives a better update of live quotes of indices and stocks.

This terminal provides live streaming quotes for both NSE and BSE free. It also provides quotes for most of the indices and also the constituents/stocks of the indices in BSE and NSE.  The terminal also provides live news and other market news, which might be useful for traders. The hardware recommended is minimum of 1 GB RAM.

It would be better if stock of any choice could be added ( market watch of a set of stocks ), which would be easier to track one's trading positions. Anyway, this is a better alternative for people who don't have access to any trading software, to view live action of the markets.




You could just try the same here at Moneycontrol Terminal


NSE Level 3 Data

Before we get into details of NSE Level 3 Data, it is important to first understand the basic operations of the stock market.  All publicly traded equities have a bid price and an ask price when they are bought and sold. The bid is the highest price a trader( or an investor) is willing to purchase a stock. The ask is the lowest price in which he is willing to sell a stock.


Depth of the Market(DOM):Looking at a Level 1, Level 2 or Level 3 quotes can give a trader, a basic idea of how a stock is performing at any given time.

Level 1 Market Data provides the basic market data which includes Bid price, Bid size, Ask price and Ask size.

Level 2 Market Data provides more information than Level I data. Mainly, it doesn't just show the highest bid and offer, but also shows bids and offers at other prices. Now level 2 provides market depth data upto 5 best bid and ask prices.

Level 3 Market Data provides market depth data upto 20 best bid and ask prices .  This primarily used by brokers and ma…