Bonus issue
A bonus issue gives existing shareholders extra shares for free, in a fixed ratio to the shares they hold, funded from the company’s accumulated reserves.
What it is
A company that has built up profits over the years can convert part of those reserves into new shares and hand them to existing shareholders. A 1:1 bonus means you get one new share for every one you hold. A 1:2 bonus means one new share for every two you hold.
Face value stays the same. The money moves from reserves to share capital on the balance sheet, so the company’s total net worth does not change.
What happens to the price
On the ex-bonus date the share price adjusts down to reflect the larger number of shares. After a 1:1 bonus, a ₹600 share trades around ₹300, and you hold twice as many shares.
So the total value of your holding is the same. The bonus shares are “free” only in the sense that you do not pay for them. You are not richer the day they arrive.
Why companies do it
A bonus can signal that management is confident about the business and has healthy reserves. It also lowers the price per share and increases the number of shares traded.
As with a split, per-share figures like EPS and dividend per share fall after a bonus. If the company keeps the same dividend per share afterwards, your total dividend rises, but that is a dividend decision, not a result of the bonus itself.
A 1:2 bonus
You hold 100 shares trading at ₹450, worth ₹45,000. The company announces a 1:2 bonus: one new share for every two held. You receive 50 bonus shares and now hold 150. The price adjusts to about ₹300. Your holding is still worth about ₹45,000.
Common mistakes
- Thinking bonus shares are free money that adds to your wealth.
- Buying a share just before the record date expecting a gain from the bonus itself.
- Comparing pre-bonus and post-bonus prices without adjusting for the bonus.
You hold 60 shares. The company announces a 1:3 bonus. How many shares will you hold?
- 80
- 180
- 240
Show the answer
80. A 1:3 bonus gives one new share for every three held. 60 ÷ 3 = 20 new shares, so you hold 80.
Common questions
Are bonus shares free?
You do not pay for them, but the share price adjusts down so the total value of your holding stays the same.
What does a 1:1 bonus mean?
You get one new share for every share you already hold, so your share count doubles and the price roughly halves.
Who gets bonus shares?
Shareholders whose names are on the company’s records on the record date. In practice, you need to have bought before the ex-bonus date.
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