What is Bonus Share? – How to Get FREE SHARES from a Company??

What is Bonus Share?

What if you get FREE shares from a company? Wouldn’t that be great?

Yes, there are some companies that offer shares free of cost. Such shares are called bonus shares. It’s similar to buying something and finding out that there is a gift inside the package.

Everyone loves free stuff.

But there’s a catch to get free Bonus Shares. You just need to follow some instructions and gather knowledge on the topic. Luckily all you need to do is read this article. 

So let’s get you some free shares.

Bonus Shares Meaning

Bonus shares are additional shares issued to the existing shareholders in proportion to the number of shares they previously own with no extra cost. Usually, Bonus shares are issued as an alternative to the dividend payments when a company is low on cash reserves. They are declared in ratios of 1:2, 1:3, 4:1, 5:8, etc.

How are Bonus Shares Issued?

There are two ways in which a company issues bonus shares.

  • Bonus Issue
  • Stock Split

What is Bonus Issue?

Bonus Issue is an act where the company gifts its shareholders with additional shares in proportion to the volume of shares they own. They are generally in the form of 2:1, 3:1, 5:1, etc.

To understand the bonus issue better, let’s consider an example:

Assume Mohan has 100 shares worth Rs.10 each in a company, and the bonus issue ratio declared by the company is 5:1. This means for every 1 share he owns; the company will gift him 5 shares (1 x 5 shares). So the total shares Mohan will have after the bonus issue will be 500 shares (100 x 5 shares).

With the increase in the number of shares, the price of the shares will decrease proportionally but the total value of shares will remain unchanged.

Here’s how it works: 

Share price before Bonus Issue: 100 Shares x ₹ 10 per share = ₹ 1000

Share price after Bonus Issue: 500 Shares x ₹ 2 per share (₹ 1000/500 Shares) = ₹ 1000

What is Stock Split?

In a stock split, no new shares are issued. Instead, the old shares are split in a predefined ratio in the form of 1:2, 1:3, 1:5, etc. This is practiced to increase the number of outstanding shares of the company.

Again, let’s consider an example to understand this better. Rohan has 100 shares at Rs.10 each in a company, and the company announces a stock split of 1:2. Now Rohan’s 100 shares will be split into 2 parts and become 200 shares, i.e., each share will become 2 times the actual shares.

The number of shares increases, but the overall value of the investment remains the same.

Check out the calculations below to understand how!

Share price before Stock Split: 100 Shares x ₹ 10 per share = ₹ 1000

Share price after Stock Split: 200 Shares x ₹ 5 per share (₹ 1000/200 Shares) = ₹ 1000

There’s a very thin line between bonus issue and stock split. I hope you are clear on that.

But does this mean all the shareholders would get the bonus shares?

No, not everyone would get the benefit of a bonus share. There are certain dates which are to be taken care of:

  • Record Date
  • Ex-Bonus Date
  • Bonus Date

What is Record Date?

The record date is the cut-off date set by the company to be eligible for bonus shares. All the shareholders who have the shares in their Demat Account on the record date will be entitled to receive bonus shares from the company.

What is Ex-Bonus Date?

If you want to be eligible for the bonus share, you have to buy the shares at least one day before the ex-bonus date. 

What is Bonus Date?

It is a date on which the company will credit the bonus shares to the shareholders’ Demat Account. It can be between 1-30 days from the Record date.

Top Bonus Share Giving Indian Companies

A tabular form of top bonus shares giving Indian companies in 2021 has been mentioned below, along with the record date and ex-bonus date.

Company Name Proportion Record Date Ex-Bonus Date
Libas Consumer Products 1:5 07 April 2021 06 April 2021
Astral 1:3 07 April 2021 06 April 2021
Globe International 1:4 19 March 2021 18 March 2021
Smruthi Organics 2:1 17 March 2021 16 March 2021
Ajooni Biotech 1:9 12 March 2021 10 March 2021
Trio Mercantile 1:6 10 March 2021 09 March 2021
Quint Digital Media 1:1 03 March 2021 02 March 2021
Nakoda Group 5:8 26 February 2021 25 February 2021
United Polyfab Guj. 2:1 18 February 2021 17 February 2021
SILGO Retail 1:4 08 January 2021 07 January 2021
Pilani Investment 2:5 02 January 2021 31 December 2020

Advantages of Bonus Shares

  • Bonus shares are tax-free for the shareholders.
  • In the long term, there’s a good chance to increase the investment as the number of shares are increasing.
  • In the time of declaration of dividend, the shareholder may get higher dividends as the number of shares has increased after the bonus shares are allotted.

Conclusion

  • Bonus shares are additional shares issued to the existing shareholders in proportion to the number of shares they previously own with no extra cost. 
  • There are 2 ways in which a company issues the bonus
    • Bonus Issue
    • Stock Split
  • Bonus Issue is an act where the company gifts its shareholders with additional shares in proportion to the volume of shares they own. They are generally in the form of 2:1, 3:1, 5:1, etc.
  • In a stock split, no new shares are issued. Instead, the old shares are split in a predefined ratio in the form of 1:2, 1:3, 1:5, etc. This is practiced to increase the number of outstanding shares of the company.
  • The record date is the cut-off date set by the company to be eligible for bonus shares. All the shareholders who have the shares in their Demat Account on the record date will be entitled to receive bonus shares from the company.
  • If you want to be eligible for the bonus share, you have to buy the shares at least one day before the ex-bonus date. 
  • Bonus Date is a date on which the company will credit the bonus shares to the shareholders’ Demat Account. It can be between 1-30 days from the Record date.
  • Bonus shares are tax-free for the shareholders.
  • In the long term, there’s a good chance to increase the investment as the number of shares is increasing.
  • In the time of declaration of dividend, the shareholder may get higher dividends as the number of shares have increased after the bonus shares are allotted.

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