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  • Category: Investments

    What is the difference between stock split and bonus?


    Are you keen to know the difference between terminologies like stock split and bonus in the stock market? Ask our technical experts to get the right set of information.

    One might come across different words while dealing with stock market. Terms like stock split and bonus are the most common among them. I want to know what is the difference between the two? Why it is so that during stock split or 1:1 bonus, stock price gets half? Please explain by giving example.
  • #12351
    Let's take a look at the concept.

    Stock Split

    Stock splits happen when the company observes that their share prices are too high or at level than the competitor share level. By splitting the stock, they give more shares to existing shareholder. At the base the market capitalization value isn't changed for the company. Only the more power given to the current shareholder. Splits are also known to boost the share sales by existing shareholders. Hence stock split achieve the marketability and liquidity for the company.

    Bonus Share

    When the stocks are split or when the dividend is issued. There are companies who issue additional share to the current shareholder. Here the market capitalization value of the share remains the same. However the current shareholder gets the bonus share increasing the value of the share. So when 1:1 share is split in such case Rs 10 share gets divided into 10 shares with value of Rs 1. This in turn increases the value of shares of the company in the market increasing the liquidity.

    So as you can see,

    1. Splitting of share leads to the bonus share.
    2. Bonus share does not mean more base value for company.
    3. Bonus share divides the existing share into small quantity, increasing the liquidity of shares.
    4. Splitting happens when the shares prices are meant to be increased for floating the share value and liquidity.
    5. Share bonus is result of splitting.

    In short during split process, company either issues bonus or dividend depending on how they plan on increasing liquidity.

  • #12352
    Well, instead of going deeper into the concepts, I would present the basic descriptions of the two

    Bonus
    A company may decide to offer additional shares to the share holder. When a company plans to provide a bonus share of 1:2, it would mean you will get two shares for every single share you have. If you have 100 shares of a company, a 1:2 bonus share will give you 200 shares more which would mean you now hold 300 shares.

    Stock split
    This move is a means of helping out in liquidity of the shares. If stocks are split in the ratio 1:2, one share you hold will be treated as two. That would mean if you have 100 shares of Rs. 100 each, a stock split at 1:2 will mean you now hold 200 shares at Rs. 50 face value. The net share worth remains same at Rs. 10000 itself.

    Having described them, let us now come to the difference. Either of them do not change your share value. Your earnings per share will remain the same. A stock split will make the shares affordable for the smaller shareholders. Thus, the company can look forward to an increased demand for the shares. Bonus will improve your market value.

    Live....and Let Live!

  • #12353
    Let us see the two concepts of Bonus and Share split.

    Share Split
    Most of the companies prefer this share splitting concept. It will reduce the stock price but it will increase the total holding liquidity. How does it work? Let's take a look, if you have a company that holds 1000 shares around Rs. 10 of each, most of the traders would feel the price was little bit high. This may lead to a negotiation for buying the shares on trading. At that moment, share split can be introduced. This makes 1:10 ratio splitting of shares. Now your shares will become 100 and the trading price value will be Rs. 100. The overall price of the shares will remain same as Rs. 10000 in both cases. This split share concept helps the traders to purchase their required numbers of share at affordable prices. This creates interest for all other share holders.

    Bonus
    Some of the companies follow this concept in their organization. They divide their shares to their shareholders by dividend and bonus shares. Here the company makes 1:1 ratio for bonus. If you are a share holder, having the shares of 1000, these shares will hold the price of Rs.100 each. The company will provide you 2000 shares at the holding price of Rs. 100 each. Here the company can just give 1000 shares additionally for the price of Rs. 0. You alone will know this information. But other shareholders will see that you have bought these 2000 shares for the price of Rs. 50. The overall price of the shares will be shown as Rs. 100000 for all other shareholders.

    Here you can see that both the Bonus and share split have similar concepts in company's scenario. In the bonus concept, the total shares of you will be shown as share but only the numbers will increase to show that you are having more number of shares of that company. But in other aspect, the share split concept is different. Here you are having more number of shares, but due to the concept you need to show the shares in a reduced manner but the value of the shares remain constant.


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