Stock split
A stock split divides each existing share into several shares, so you hold more shares and each one is priced lower. The company's total value does not change, and neither does the worth of your holding at the moment of the split.
What changes and what does not
In a split, the number of shares goes up and the price per share goes down by the same factor. The company is the same, its profit is the same, and its market cap is the same. Only the size of each slice has changed.
In India a split is often described as a reduction of the face value, for example from ₹10 to ₹2 per share, which turns each share into five.
Why companies do it
A lower price per share can make a share easier to buy in small quantities and can make trading more active. It is a change of presentation, not a change in what the business is worth.
Split and bonus shares
A bonus issue is a different action that looks similar: the company gives existing shareholders extra shares at no charge, using its reserves, and the price adjusts down too. Both raise the share count without changing the value of your holding at that moment.
What a split does not do
A split does not make a company worth more and is not 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-5 split (hypothetical numbers)
Suppose you own 10 shares priced at ₹1,000, a holding worth ₹10,000. The company splits each share into 5. You now own 50 shares, and each is priced near ₹200, so the holding is still worth about ₹10,000. The market cap is unchanged too.
Common questions
- What is a stock split in simple words?
- Each share is cut into several smaller shares, so you own more shares at a lower price each.
- Do I gain money from a stock split?
- Not directly. The value of your holding is the same just after the split.
- What is the difference between a split and a bonus issue?
- A split divides existing shares. A bonus issue gives extra shares from the company's reserves. Both increase the share count and lower the price per share.
- Does a split change the market cap?
- No. Market cap is the share price times the number of shares, and the two changes cancel out.