Bonus shares are extra shares given to shareholders at no cost, based on their current holdings, using a company's retained earnings.
Bonus shares are issued by converting company profits into share capital, distributed to shareholders in ratios like 1:1 or 2:1, at no cost, directly into their Demat accounts.
Eligibility depends on owning shares before the ex-bonus date announced by the company. Shareholders on record by this date receive bonus shares based on their holdings.
The main types of bonus shares are based on their sources from company profits or capital redemption reserves, distributed in ratios like 1:1 or 2:1 per existing share held.
Advantages of bonus shares: enhance shareholder value without cash outflow, signal confidence, boost share liquidity, maintain equity, and foster investor loyalty.
Disadvantages are potential EPS dilution, and lower dividend per share due to profit distribution across more shares, which can lead to reduced dividend per share.