When you hear the term “bonus issue” in the world of investing, it might sound like an extra reward for being a loyal shareholder. And in a way, it is! But there’s more to it than meets the eye. Let’s explore what a bonus issue is, how it works, and why it’s a win-win for both companies and their shareholders.
A bonus issue is a corporate action where a company distributes additional shares to its current shareholders at no extra cost. The number of bonus shares you receive is based on how many shares you already own. For example, if a company announces a bonus issue with a 1:1 ratio, it means you’ll get one additional share for every share you currently hold.
The primary reason for issuing bonus shares is to capitalize on a company’s reserves or earnings. Instead of paying out cash, the company converts accumulated reserves or retained earnings into extra shares. This increases the company’s share capital without affecting its overall financial position or cash reserves. In simple terms, the company rewards its shareholders by giving them more shares, while keeping its cash intact.
Let’s take a look at some of the recent bonus issues in August 2024 to see this concept in action.
| Company | Bonus Ratio | Record Date | Ex Bonus Date | CMP |
| EIH Associated Hotels Ltd | 1:1 | 13 August, 2024 | 13 August, 2024 | 940.0 |
| GRP Ltd | 3:1 | 12 August, 2024 | 12 August, 2024 | 15,881.0 |
(Source: BSE)
EIH Associated Hotels Ltd has announced a bonus issue where shareholders will receive one additional share for every one share they hold. With the record and ex-bonus date set for August 13, 2024, this could be a good opportunity for existing shareholders to increase their holdings at no extra cost. The current market price is Rs 940
GRP Ltd is offering a bonus issue with a 3:1 ratio, meaning shareholders will receive three additional shares for every one share they own. With a higher bonus ratio, this issue is particularly attractive, especially given the company’s current market price. The current market price is Rs 15,881.
The most obvious advantage of a bonus issue is that it allows shareholders to own more shares without spending any additional money. This can be particularly appealing for long-term investors who want to increase their shareholding without further financial outlay.
A bonus issue can also increase the marketability of a company’s shares. With more shares available for trading, the increased liquidity can make it easier for investors to buy or sell shares. This often leads to increased trading activity and can enhance the company’s visibility in the market.
Bonus shares can make a company more attractive to prospective investors. The perception of growth and stability that comes with a bonus issue can drive interest in the company’s stock, potentially leading to a rise in its share price.
Bonus issues are a strategic move by companies to reward their shareholders while enhancing the company’s financial appeal. Whether you’re an existing shareholder or a potential investor, understanding how bonus issues work can help you make more informed investment decisions.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
Published on: Jul 31, 2024, 5:37 PM IST
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