Bonus shares vs stock split
A bonus issue gives you extra shares free, from the company's reserves, in a fixed ratio. A stock split divides each existing share into several smaller ones. Both raise the number of shares you hold and lower the price per share, and neither changes the value of your holding at that moment.
Bonus shares and Stock split side by side
| Bonus shares | Stock split | |
|---|---|---|
| What happens | The company gives extra shares to existing shareholders at no charge | Each existing share is divided into several shares |
| Where the shares come from | The company's reserves are turned into share capital | The existing shares are divided; nothing is added from reserves |
| Typical wording | A ratio, such as 1 for 1 | A ratio, such as 1 for 5, or a change in face value |
| Number of shares you hold | Goes up | Goes up |
| Price per share | Adjusts down | Adjusts down |
| Value of your holding at that moment | Unchanged | Unchanged |
| Company's market cap | Unchanged | Unchanged |
What they have in common
The company is the same size as before, but it now has more shares. So the price per share adjusts down, and the value of your total holding and the company's market cap are unchanged at that moment. Neither is extra profit, and neither is a return.
How they differ
A bonus issue is a gift of extra shares from accumulated profits held as reserves, which is why no cash changes hands. A split changes the size of each slice without adding anything from reserves. In India a split is often described as a reduction in face value, for example from ₹10 to ₹2, which turns each share into five.
Neither is a dividend
A dividend pays out cash that leaves the company. A bonus issue and a split pay out no cash. Companies sometimes announce more than one of these, but they are separate decisions.
What they do not mean
Neither makes a company worth more, and neither is by itself a reason to buy or sell. Prices move afterwards for the usual reasons, such as results and the wider market.
A 1 for 1 bonus and a 1-for-5 split (hypothetical)
Suppose you hold 100 shares at ₹600, worth ₹60,000. After a 1 for 1 bonus you hold 200 shares at about ₹300, still worth about ₹60,000.
Suppose instead you hold 10 shares at ₹1,000, worth ₹10,000. After a 1-for-5 split you hold 50 shares at about ₹200, still worth about ₹10,000.
Common questions
- Is a bonus issue the same as a stock split?
- No, but they have the same effect on your holding. A bonus gives extra shares from reserves. A split divides existing shares.
- Do I gain money from a bonus or a split?
- Not at that moment. You hold more shares, each worth proportionately less, so the total is unchanged.
- Do I receive cash with a bonus issue?
- No. A bonus pays extra shares, not cash. A dividend is the one that pays cash.
- Does the market cap change?
- No. Market cap is the share price times the number of shares, and the two changes cancel out.
Related terms
This page compares ideas and does not recommend either one. Maetis does not give investment, tax or legal advice.