Stock split
A stock split divides each existing share into several new shares with a proportionally lower face value and price, without changing the total value of your holding.
What it is
In a split, the company reduces the face value of each share and gives you more shares in return. A 1:5 split of a ₹10 face value share, for example, turns each share into five shares of ₹2 face value.
The share price adjusts in the same proportion on the ex-date. If the share was ₹1,500 before a five-way split, it starts trading around ₹300 after it. You own five times the shares, each worth a fifth as much.
Why companies split
The usual reason is to make the share price look more affordable to small investors and to increase the number of shares traded. A lower price per share can make it easier for people to buy small quantities.
Nothing about the business changes. Sales, profit, debt and your percentage ownership all stay exactly the same.
What to watch
Per-share figures like EPS, book value per share and dividend per share all fall in the same ratio after a split. When you compare old and new numbers, use the adjusted figures, which most charts and data sites provide.
Prices sometimes rise around a split announcement because of excitement, but a split creates no value by itself.
Your holding before and after a split
You own 40 shares of a company at ₹2,000 each, face value ₹10. Your holding is worth ₹80,000. The company does a 1:10 split. You now own 400 shares of face value ₹1, and the price adjusts to about ₹200. Your holding is still worth ₹80,000.
Common mistakes
- Thinking a split makes the shares cheaper in value terms. Only the price per share changes.
- Comparing pre-split and post-split EPS or prices without adjusting them.
- Confusing a split with a bonus issue. They look similar but work differently in the accounts.
You hold 100 shares at ₹900. After a 1:3 split, roughly what do you hold?
- 300 shares at about ₹300
- 100 shares at ₹300
- 300 shares at ₹900
Show the answer
300 shares at about ₹300. Each share becomes three, and the price adjusts to a third. 300 × ₹300 = ₹90,000, the same value as before.
Common questions
Is a stock split good for shareholders?
It does not add value by itself. Your share of the company and the total value of your holding stay the same.
What is the difference between a stock split and a bonus issue?
A split reduces face value and creates more shares. A bonus keeps face value the same and issues new shares out of the company’s reserves. For the investor, both increase the share count and reduce the price in proportion.
Do I need to do anything for a stock split?
No. If you hold the shares in your demat account on the record date, the new shares are credited automatically.
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