Last Updated on October 6, 2023 by BFSLTeam BFSLTeam
Bonus shares are additional shares that a company issues to its existing shareholders for free, based on the number of shares they already own. Bonus shares are a way of rewarding shareholders and increasing their participation in the company. Bonus shares also help in reducing the share price and making it more affordable for new investors. But when will bonus shares be credited to demat account? How can shareholders claim their bonus shares? What are the benefits and drawbacks of bonus shares?
These are all the questions that this article will answer.
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The process of issuing bonus shares involves several steps and dates that shareholders need to be aware of. The first step is the announcement of bonus issues by the company’s board of directors. The announcement will specify the ratio of bonus shares, the record date, and the ex-date.
If you are thinking, when bonus share will be credited, here are some points to explain you in detail when bonus shares are credited in demat account.
- The ratio of bonus shares indicates how many bonus shares a shareholder will receive for every share they hold. For example, if a company announces a bonus issue of 1:1, it means that a shareholder will get one bonus share for every share they own.
- The record date is the cut-off date by which a shareholder must own the shares in their demat account to be eligible for the bonus issue. The record date is usually set a few days after the announcement date.
- The ex-date is the date on which the share price adjusts to reflect the bonus issue. The ex-date is usually set one working day before the record date. On the ex-date, the share price drops in proportion to the bonus issue ratio. For example, if a share is trading at Rs. 100 before the ex-date and the bonus issue ratio is 1:1, then on the ex-date, the share price will drop to Rs. 50.
- The next step is the allotment of bonus shares by the company to the eligible shareholders. The allotment date is usually a few days after the record date. On the allotment date, the company will create new shares and transfer them to the shareholders’ demat accounts.
- The final step is the listing and trading of bonus shares on the stock exchange. The listing date is usually a few days after the allotment date. On the listing date, the bonus shares will start trading on the stock exchange along with the original shares.
The whole process of issuing bonus shares can take anywhere from a few weeks to a few months, depending on various factors such as regulatory approvals, technical glitches, market conditions, etc. Therefore, shareholders need to be patient and keep track of the important dates and announcements related to the bonus issue.
Bonus shares have several benefits and drawbacks for both shareholders and companies. Some of the benefits are:
- Bonus shares increase the number of shares outstanding and reduce the share price, making it more affordable and attractive for new investors.
- Bonus shares increase the liquidity and trading volume of the shares, as more investors can buy and sell them.
- Bonus shares reward loyal shareholders and increase their stake in the company.
- Bonus shares do not affect the total value or ownership of shareholders, as they are issued from the company’s reserves and surplus.
- Bonus shares do not involve any cash outflow or tax liability for shareholders, as they are not considered as income or dividend.
Some of the drawbacks are:
- Bonus shares do not increase the earnings or profitability of the company, as they are merely a book adjustment.
- Bonus shares may dilute the earnings per share (EPS) and book value per share (BVPS) of the company, as they increase the number of shares outstanding.
- Bonus shares may create unrealistic expectations among shareholders about future dividends or capital appreciation.
- Bonus shares may indicate that the company does not have any profitable investment opportunities or growth prospects, and is resorting to bonus issues to appease shareholders.
In Summary
In conclusion, bonus shares are a form of corporate action that involves issuing additional shares to existing shareholders for free. Bonus shares are credited in the demat account after several steps and dates that shareholders need to follow. Bonus shares have both advantages and disadvantages for shareholders and companies, depending on various factors such as ratio, price, market conditions, etc. Bonus shares are one of the ways that companies can reward their shareholders and increase their participation in their business.
