Bonus Issue
A bonus issue (also called a stock dividend) is when a company allots free additional shares to its existing shareholders in proportion to their current holding, funded from its accumulated reserves rather than raising fresh capital.
Understanding Bonus Issue
Bonus issues are funded from a company's reserves and surpluses. The company essentially capitalises retained earnings, converting them into share capital — the total equity is the same, just distributed across more shares. Indian companies often issue bonus shares to boost share liquidity (lower share price attracts more retail interest) or as a signal of reserve health.
SEBI requires a 14-day announcement period before the record date. The ex-bonus date is when the share starts trading without the bonus right; investors must hold the share before the record date to be eligible.
Why it matters
Bonus issues are largely cosmetic — they don't change your wealth or the company's economics. But they can be a positive signal (the company has surplus reserves) or improve liquidity. For tax purposes, the cost base of the original shares is split proportionally between original and bonus shares — a key calculation for capital gains when you eventually sell.
Example
You hold 100 shares of TCS at ₹3,500/share, total value ₹3.5 lakh. TCS announces a 1:1 bonus issue with record date 15 May. On the ex-bonus date, your holding becomes 200 shares at ₹1,750/share (the price halves on listing post-bonus) — total value still ₹3.5 lakh. The bonus shares are credited to your Demat account 1-2 days after the record date.
You hold 100 shares of TCS at ₹3,500/share, total value ₹3.5 lakh. TCS announces a 1:1 bonus issue with record date 15 May. On the ex-bonus date, your holding becomes 200 shares at ₹1,750/share (the price halves on listing post-bonus) — total value still ₹3.5 lakh. The bonus shares are credited to your Demat account 1-2 days after the record date.