Simple Explanation of Bonus Shares and Stock Splits
Greetings,
Today, I will provide you with information about bonus shares and stock splits.In the stock market, companies use strategies like bonus shares and stock splits to benefit their investors.
Bonus Shares:
What They Are: Bonus shares are extra shares that a company gives to its existing shareholders for free. This is usually based on how many shares a person already owns.
Why Companies Do It: When a company gives out bonus shares, it increases the total number of shares. However, the price of each share does not change. This can lead to higher dividends in the future because shareholders now have more shares.
Example: If you own 10 shares and the company gives a 1:1 bonus, you will get 10 more shares. Now you have 20 shares in total.
Stock Splits:
What They Are: A stock split is when a company divides its existing shares into smaller parts. This reduces the face value of each share but does not change the total value of the company.
Why Companies Do It: The main goal of a stock split is to make shares cheaper and more affordable for more investors. This can lead to more trading activity and liquidity in the market.
Example: If a company does a 2-for-1 stock split, and you had 1 share worth ₹100, after the split, you will have 2 shares worth ₹50 each.
Both bonus shares and stock splits are ways for companies to manage their shares. Bonus shares give you more shares without extra cost, while stock splits make each share cheaper. Both can be good for investors, as they can lead to more profits in the future.