What is difference between Bonus Issue & Stock Split

General
1

In both the cases, Bonus & Stock Split, investors’ investment value remains the same e.g. Zerodha-Varsity Bonus Issue

For Example:
No of shares before Bonus & Split: 100
Value of per Share: Rs 75/-
Total Investment Value: Rs 7500/-

After Bonus & Stock Split (Ratio of 1:1)
No of shares after Bonus & Split: 200
Value of per Share: Rs 37.5/-
Total Investment Value: Rs 7500/-

When the value of Investment remains the same, why one is called BONUS and another is called SPLIT?? Investor is getting actually nothing in Bonus!!! Great dilemma…!! Please give me proper explanation…

2

Bonus is always a bonus.

  • Bonus shares are additional shares issues by a company from their reserves so a bonus reduces company reserves but a stock split does not.
  • A bonus issue increases the share capital but a stock split does not.
  • A bonus issue does affect face value of stock but a split reduces it.
2 Likes
3

Sir, thank you very much for your reply. I am clear about the technicality of bonus share. But i am not able to digest why my total investment value remains the same inspite of bonus. My investment should be doubled post issue of bonus shares. That is what i am not able to understand

4

Due to bonus - Your TOTAL cost (Investment cost) remains same. Average cost (Investment cost) PER SHARE reduces.

5

Your answer is still not clear for a layman to understand. E.g. You have a Rs 1000 note. I give you 2 notes of Rs 500 each in exchange of Rs1000 note. In the same way, in bonus issue as well as in stock split, your total value of investment remains the same. So my question is how they are different. I hope you got my point

6

Well, the main difference that I understood is when a stock is split, there is no increase or decrease in the company’s cash reserves. In contrast, when a company issues bonus shares, the shares are paid for out of the cash reserves, and the reserves deplete.

Hope this helps

7

Technically what you are saying is right, in bonus we didn’t get any “bonus” shares, they simply create some extra shares in the ratio of 1:1, 1:2, 1:5 etc. from their reserve and surplus. So I think that’s a little bit of misnomer.

8

Well, when the investors investment value neither increase or decrease, why the company’s reserve decrease? Because in real terms, it is not paying anything. The company is just giving you change of Rs.1000 note in the form of two Rs 500 notes, that’s it.

9

I was having 1 share of Reliance Industres of Rs 2400 8-9 years ago.
The company gave bonus in the ratio of 1:1 so my demat balance was 2 shares of Rs 1200 each. Investment value remained the same i.e. Rs 2400

The company again gave bonus in the ratio of 1:1 a few months ago. So my demat will show total 4 shares. In short, i am not able to digest the bonus shares as “BONUS” in reality…

Please comment

10

When I will get dividend , suppose 100 percentage of face value. Then you will get more dividend…
If bonus was not given when share was at 2400 , one share u Will get that much dividend for only one share. But you have 4 shares then you will get more dividend.

11

When company gives bonus share it reduces EPs…Hence share price will correct…