What are Bonus Shares: Eligibility, Types, Benefits to Investors

The bonus issue of shares increases the company’s value and market position. These shares increase the company’s issued share capital, thus increasing liquidity and investor participation. The issue will not increase profits, as the earnings per share falls. Investors should be aware of the possibility of receiving bonus shares because the profit will remain constant, but the number of shares will increase as earnings per share fall. When the company declares a dividend in the future, the investor will receive a higher dividend because he now owns more shares in the company due to the bonus issue. Additional shares reduce income per share, which might disappoint investors, making the stocks less attractive.

It will reduce the share price in the proportion to the issued bonus shares. While considering the purview of the market, bonus shares provide additional income to shareholders. The ex-date as the name suggests is just a day before the record date. In this, an existing investor must make sure that he buys the shares of the company at least one day prior to the ex-date so as to become eligible for the bonus shares. We understand that bonus share offerings are a key aspect of increasing shareholder liquidity.

What are Bonus Shares?

Issuing bonus shares is also called “capitalization of profits” because it is given out of the profits or reserves of the company. Despite having sufficient liquidity, companies may still issue bonus shares to avoid the high dividend distribution tax which is levied on them at the time of dividend declaration. They are issued by companies having earned high profits or large free reserves but do not have the liquidity to pay the dividend to their shareholders. Therefore, the companies issue new or additional shares to the existing shareholders.

• This means that in order to be eligible for the bonus issue you had to buy shares of Nykaa by Nov. 9 to get a delivery in two trading days, i.e., by Nov. 11, 2022, which was the record date.
• Please ensure you carefully read the risk Disclosure Document as prescribed by SEBI/FMC.
• The shares are given at no additional cost based on the number of shares the investors already hold.
• Now, the shareholders who manage to own the shares of the provider company before the record date and the ex-date as declared by the company shall become eligible for bonus shares.

Do you have the nerves of steel or do you get insomniac over your investments? Pay 20% upfront margin of the transaction value to trade in cash market segment. Please ensure you carefully read the risk Disclosure Document as prescribed by SEBI.

The bonus shares increase shareholders’ holdings in the company, while the stock split makes the stocks more affordable. When the company announces a partially paid bonus, the remaining amount of shares gets fulfilled. The company can’t use the capital redemption reserve and security premium account to issue partially paid bonus shares.

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Bonus shares are additional shares allotted free of cost to shareholders. Companies reserve a portion of their profit, a part not paid as a dividend, over the years and when the free reserve grows to a substantial volume, they release bonus shares from that. Through the record date, companies determine who is eligible to earn bonus shares.

In the absence of the provision, a special resolution can be passed at the company’s General Meeting to amend the Articles of Association and include the provision to issue bonus shares. Bonus shares are generally issued to restructure a company’s cash reserves. This company may then issue Bonus shares to bring the issued capital in terms with the employed capital.

WHAT IS A BONUS ISSUE?

Zero cash payments ensure that the position of liquidity remains unchanged. The record date is a cut-off date set by the company, and the investors must be shareholders of the company before this date for them to be eligible to receive stock bonus share issues. Besides, the ex-date is a day preceding the record date set by the company. In the Indian economy, the issue of bonus shares by companies has become common in recent years.

Though we have filed complaint with police for the safety of your money we request you to not fall prey to such fraudsters. You can check about our products and services by visiting our website You can also write to us at , to know more about products and services. Upon a bonus issue of shares, the dividend per share decreases as there is an increase in the number of shares. Theupcoming bonus shares in 2022 are Precision Wires India Limited and BLS International Services Limited. However, the fullbonus shares 2022 listcan be easily found on NSE and BSE websites under corporate actions. As the outstanding shares rise in the company, this will increase the liquidity of the stocks.

Tax Saving

The company’s Articles of Association must have the provision for bonus shares issue. Typically, a bonus share issue underlines the sound financial health of the company. It reflects that the company is strong enough to issue additional equities and has made profits. The companies which gave the most bonus shares since 2000 in India are Infosys, Bharat Petroleum Corporation , Wipro, ITC and Samvardhana Motherson.

As per the who is eligible for bonus shares laws, a dividend is the distribution of accumulated profits of a company by issuing some of its assets to the shareholders. Going by this, an issue of bonus shares to the shareholders is a form of dividend payout. India has recently witnessed several companies giving out bonus shares, especially in record numbers in 2022. Due to a great performance of company stocks post the world health crisis, in FY22, companies are dishing out bonus shares in the multitude. Since 2010, the 2022 bonus share payout has been the highest yet with above 70 companies offering shareholders bonus shares till July 2022. If we go by the pace of declarations, we can expect an excess of 2018’s bonus share issuances, some 78 companies, this year.

According to the relevant provisions of the Income Tax Act of 1961, a bonus issue for shareholders in a particular, fiscal year has no tax implications. This means you won’t have to pay taxes when you receive these shares. Capital gains arise when you trade/ sell additional shares and pay taxes accordingly. Before issuing bonus shares, the company should convert partially paid shares into fully paid shares. The company issue these shares out of Investment Allowance Reserve, General reserve, Development rebate reserve, etc. For instance, suppose the record date is Thursday, and the ex-date is Tuesday.

Existing investors would receive more shares without additional costs and tax. The company may gain popularity and see increased retail participation due to the bonus issues of shares. This article covers a short note on the concept of bonus shares, types, eligibility and tax implications of stock bonuses. Save taxes with Clear by investing in tax saving mutual funds online.

BLS International Services Limited

Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances. We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication.

Some of the key companies that have issued bonus shares in 2022 include Torrent Pharma, Indian Oil, REC, Au Small Finance, Ajanta Pharma, etc. When a firm issues bonus shares, its shareholders do not have to incur any extra costs to get them. The number of bonus shares you receive depends on the number of shares of the firm you already hold. Issuing bonus shares do not increase the overall profits earned, as a result, profits remain the same while the number of shares increases. This further implies that the earnings per share that investors receive shall decrease.

The information mentioned herein above is only for consumption by the client and such material should not be redistributed. However, bonus shares raise no money and defy the concept of shares. Companies with strong financial position, strong reserves, and cannot pay dividends due to cash shortage. Long-term investors can benefit from a higher number of shares.

Anyone who buys the stock on the ex-date will not be eligible for this. By now you must have gauged the technical know-how of the bonus shares issued by a company, it is equally important to keep an eye on the companies offering these bonus shares during the year. Let us look at some of the active companies offering bonus shares currently. ● The company increases its shareholding and spikes market value with bonus shares.

The bonus shares are first issued under a non-permanent or temporary ISIN. Moving from temporary ISIN to permanent ISIN involves 4-5 business days. Once it is converted to a permanent ISIN number, the bonus shares are eligible for trading. ● If a company opts to issue bonus shares over dividends, it increases the burden on the company in the long run.

Let us see how bonus issues can enhance the performance of your portfolio in the long term with the help of a real life example ofWipro. On the market side, bonus shares provide additional income to shareholders. Shares issued in lieu of dividends are a compensation for the shareholders.

• It is crucial, however, for shareholders to know the bonus shares calculation, so that when these may be issued, the correct amounts due are received by shareholders.
• In stock splits the shares with a new face value are credited immediately.
• The Company has not delayed any of the payments of interest or principal on any of its debt securities in respect of fixed deposits.
• This means that when bonus shares are sold, the entire selling price is considered as capital gains.

Issuing bonus shares might reduce earnings per share which will make the stocks less attractive for investors. When bonus shares are distributed free of cost in the proportion of shares held by the investor, it is called fully paid bonus shares. Usually when you buy shares of a company, it gets credited into yourDemat accountin three working days. So the ex-date is the cut-off date by which you must buy the shares to get eligible for bonus issue. Usually it is one set one working day prior to the record date.

Before issuing bonus shares, distribute these shares at no additional cost in proportion to the investor’s holdings in the company. The company issue these shares out of Capital Redemption Reserves, Profit and Loss Account, Investment Allowance Reserve, etc. At a later date, If the call for the remaining ₹30 is not made by the company and instead funds it from the reserves, then such partly-paid up shares are called partly-paid up bonus shares. In this case, the shareholder will get the share without paying ₹30. On the con side, issuing bonus shares is costlier than declaring the dividend.

Now, the shareholders who manage to own the shares of the provider company before the record date and the ex-date as declared by the company shall become eligible for bonus shares. In the Indian stock market, the principle of the T+2 rolling system is followed for the delivery of shares. This means that the shares must be bought before the ex-date for an investor to be credited with the ownership of given shares. This increases the per capita of the company and makes them look pretty rewarding in front of its investors. However, bonus shares can only apply when the company has a massive free reserve and has booked hefty profits.

Let’s move ahead and understand the two terms that you will often hear when it comes to bonus issues. If you possess the issuing company’s shares on the record date, your bonus shares will get credited to your Demat account, usually within 15 working days from the record date. Hence, all the shareholders who possess shares of the issuing company before the ex-date and on the record date are eligible to receive stock bonuses. A company may issue partly paid-up bonus shares from general reserve, investment allowance reserve, etc.