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

Post a Comment

Popular posts from this blog

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.

What is Gold ETF - Gold Bees, Reliance Gold,Kotak Gold

What is Gold Bees or Gold ETF?

Gold ETFs are open-ended mutual fund schemes that will invest the money collected from investors in standard gold bullion (0.995 purity). The investors' holding will be denoted in units, which will be listed on a stock exchange.They provide returns that would closely track the returns from physical gold in the spot market.

An investor can buy and redeem the units either directly from the mutual fund or from the stock exchange.Presently there are many Gold ETFs traded in NSE India. Some of the listed Gold ETFs are GoldBees,Reliance Gold,Kotak Gold,UTI Goldshare



Why choose Gold?
Gold holds its own in any investment evaluation on its strengths as a hedge against inflation, value in the event of political uncertainties and its traditionally negative co-relation with other asset classes such as stocks, fixed income securities and commodities.

The value of goods and services that gold can buy has remained stable unlike currencies that have seen significant…

What is NIFTY BEES - ETF?

NIFTY BEES - is the first ETF (Exchange Traded Fund) in India, which seeks to provide investment returns that closely correspond to the total returns of securities as represented by the S&P CNX Nifty Index. It gives you the most diversified exposure at lowest possible unit size. Approximately value of Nifty bees will be 1/10th value of the prevailing Nifty price.

ETFs are one of the latest financial innovations and any new concept takes time to be known widely. Globally it took more then five to seven years before it could be of any significant size. In India, it was introduced with Rs 21 crore in size , a fraction of the mutual fund industry, it has come far with more than Rs 700 crore in size with six ETFs.




The Nifty BeES also scores over other index funds due to its low tracking error and expense ratio, apart from easier tradeability as it is listed in the NSE. One can also consider doing an SIP in Nifty BeES.

Some of the reasons to invest in Nifty Bees : Investing in Exchange …