What is bonus shares?

BONUS SHARES

Bonus shares are the shares which are given by the companies to their existing shareholders without asking for any additional cost, based upon the number of stocks the shareholders own. To get the bonus shares the investor or shareholder must have the company's share in their Demat account, on a record date declared by the company. Means to get the benefit of bonus share the share holder must have the shares in their Demat account which are bought on the record date, only those shareholders who holds shares of that record date gets the bonus shares.

• Issue of Bonus shares.

Bonus shares are issued on the basis of ratio.

For example: 3:1 (In this case the shareholders will get 3 free shares on each share, means if a shareholder owns 1000 shares of  XYZ company he will get additional 3000 shares of that company without paying any additional cost, so now he is the owner of 4000 shares.)

• Effect of Bonus shares on share price.

If you're thinking that after getting the bonus shares the value of shares are going to increase or will remain same, then it is wrong, after the issue of bonus shares the prices of shares will go down.

For example: (If the bonus share ratio is 3:1, and the current price of the share is Rs.1000, after the issue of bonus shares the share price will go down to Rs.250 each share.) 

• Benefits of Bonus shares.

Bonus shares are beneficial for both the company and for the investors or share holders. If the share price increases it will result in good returns to the investors.

After issuing the bonus shares the prices of the shares fall down,(so the shares which market price was for Rs.1000 is now available at Rs.250) and it results in getting more investments from investors, because the low price shares attracts more and more investors to invest in the company and the company gets capital appreciation which is also beneficial to its shareholders.

HAPPY INVESTING.