What Are Bonus Shares?

 

📘 What Are Bonus Shares?

Bonus shares are additional shares given for free by a company to its existing ordinary shareholders out of its profits. When a company makes good profits and wants to reward shareholders without paying cash, it distributes bonus shares instead.

🔹 Key Features of Bonus Shares:

• ✅ Free Distribution: Shareholders receive additional shares without paying anything.
• ✅ Paid from Profits: Bonus shares are issued from the company’s accumulated profits.
• ✅ Increases Number of Shares: After a bonus issue, the shareholder owns more shares.
• ✅ Ownership Remains Same: Ownership percentage doesn’t change because all shareholders get shares in the same ratio.
• ✅ No Financial Burden: The company rewards shareholders without spending cash.

🧩 Example:

If you own 100 shares of a company and it announces a 1:1 bonus share:

• 🔸 You will receive 100 extra shares for free.
• 🔸 Your total number of shares becomes 200.
• 🔸 Market price may decrease as the number of shares in the market increases.

📊 Why Are Bonus Shares Issued?

• 🔸 To reward shareholders while retaining cash in the company.
• 🔸 To improve stock liquidity in the market.
• 🔸 To attract investors by reducing the per-share price.

🔚 Conclusion:

Bonus shares are beneficial for investors because they increase the number of shares they own and may lead to higher dividends in the future. It also allows the company to reward shareholders without affecting cash flow.

📌 For more stock market insights, visit our blog regularly at Trade4Nep.