Bonus Issue of RIL

Today RIL has announced a bonus issue of 1:1

  1. I want to know from where these extra shares would come from?
  2. And does that mean if I have invested 1 lakh rupess in the company, they would become 2 lakh rupees?
  3. Is stock split and bonus issue the same thing?

Bonus shares r normally funded through reserves (accumulated profits) of any company…

No ur total investment will stay 1 lakh only… Just d nos of shares u hold will b double but with half d price. Net effect is 0 but with increased liquidity

In stock split case face value of shares is reduced to that proportion… But in bonus case fv doesn’t change

Issuing of bonus is a tool used by companies to depict sense of confidence in existing investor and to lure new ones
Issue of bonus doesn’t add any monetary value but increases liquidity and is sort of a marketing tool by cos.

When a company announces bonus, it pays for these shares from its cash reserves(accumulated profits). When the shares are issued, there were will be a proportional decrease in the reserves of the company but the total equity remains the same.

No, your value doesn’t increase in both the cases. When you get bonus shares the value of them will be Rs.0. So when a stock goes ex-bonus the value of that stock will reduce in proportion to the total value of the bonus shares issued. The impact on the stock the total outstanding shares will increase. If there were 20 Laksh shares in the market and if a company announces a bonus of 2:1 then the total outstanding shares will now be 50 lakh.

In the case of a split, the face value of a share will decrease but that will have no bearing on your investment. So if you had 10 shares of face value of 10 and if a company announces a split in the ratio of 1:1 then you will have 20 shares of face value 5.

You can read the Fundamental Analysis module on Varsity to understand more.

Issue of bonus is more beneficial to investors compared to stock split as cos give dividend as % of face value eg 100% of fv. As in case of bonus fv doesnt reduce and if Co gives dividend as 100% of fv then dividend amt recd will b more ascompared to split stock case

This is similar to giving a change of 2 50 Rs Notes for a 100 Rs.

When you think from Long term Perspective one or other day the price will be move to the price which was before the Bonus. so if you hold it for a long term, win-win Situation here.