What Is A Bonus share? How Does It Benefit The Shareholders?

In the equity markets, bonus share is a very popular term. A bonus share is an additional share that is offered to the current shareholders but without any additional cost. It will depend on the number of shares that a shareholder owns. A bonus share is a company's accumulated earnings which they do not give in the form of dividends, rather it is converted into free shares for the shareholders.

Bonus shares help a company to enhance its value positions in the equity market. It also helps them to gain the trust of their existing shareholders, which eventually attracts more small investors to invest. Additionally, issuing bonus shares relieves them from paying cash dividends to their shareholders. Declaring bonus shares, certainly increase the equity base of a company.

Bonus share count

The total number of shares will rise "with a constant ratio of several shares held to the number of shares outstanding". Per Se, a particular company has declared 1 for 2 bonus shares. In that case, if you are an investor, and you are holding 2000 shares of the company, then for every 2 shares, you will get 1 share for free. So, a total of 1000 shares you will get for free.

Benefits

So, if an investor can get the bonus shares, he/she will have more shares of a company for which the investor is not even paying any extra charge. In case a company's share price is very high, and for investors, it becomes tough to invest more, even if they want, then bonus shares pay off a lot. Without any cost, the existing shareholders will get the high price shares to increase their share base of the company while keeping the overall capital the same. So, one can multiply their investments in the equity market.

There are two different types of bonus shares are available, namely, fully paid bonus shares, and partly-paid up bonus shares.

What is the record date and ex-date for the bonus share?

It is important to understand the record date and ex-date for bonus share because these 2 particularly decides the investors' eligibility to get bonus shares. The record date is the cut-off date declared the company to be eligible for bonus shares. Hence, the shareholders having shares of the company on the record date, are declared as eligible to get the bonus shares. On the other hand, the ex-date is 1 day before the declared record date. So, if an investor is willing to receive the bonus shares, he/she will have to buy the shares at least a day before the ex-date. Then only the investor will be declared as eligible to get the bonus share.

However, in the case of bonus shares, the profit will remain the same for the investors, while the number of shares will increase as the earning per share will drop.

After the allocation of a new ISIN (International Securities Identification Number) for the bonus shares, these will be credited to the shareholder's account within 15 days.