What is a Stock Bonus Issue?

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What is a Stock Bonus Issue?

A company's bonus issue is a way to offer additional shares to its existing shareholders at no cost to them. At times companies, instead of paying a dividend, issue bonus shares to shareholders in some ratio. This could be 1:2 (one bonus share for every two shares held), 1:1 (one bonus share for every one share held), or in some other ratio. Issuing bonus shares is also a way to convert the company's free reserves into share account. Post bonus, the stock price of the company adjusts according to the bonus ratio.

For example, in the case of a 1:1 bonus, the stock price is halved. But in this case, since the number of shares for the investor doubles, the total value of the holding of each investor remains unchanged. The only change is in the stock price because of general market movement.

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