Numbers only
Numbers only
Understand how bonus issue affect share prices. Learn the exact formula, see real examples, and discover why companies issue bonus shares – all in one simple guide.
A bonus issue (also called a scrip issue or capitalization issue) occurs when a company distributes additional free shares to existing shareholders in proportion to their holdings. For example, a 1:1 bonus means you receive one extra share for every share you already own.
While the number of shares increases, the company’s total market capitalization remains unchanged. Therefore, the share price adjusts downward to reflect the larger number of shares outstanding.
The adjusted price after a bonus issue is based on market capitalization conservation:
For instance, a 1:2 bonus (1 bonus share for every 2 held) equals a 50% bonus. If the old price is ₹1,200, the adjusted price becomes ₹1,200 / 1.5 = ₹800.
If you held 100 shares before the bonus, you receive 40 bonus shares (total 140 shares). Your total investment value remains the same: 100 × ₹500 = ₹50,000 before; 140 × ₹357.14 ≈ ₹50,000 after.
Many investors confuse bonus issues with stock splits. Here’s a quick comparison:
| Aspect | Bonus Issue | Stock Split |
|---|---|---|
| Accounting Entry | Reserves converted to share capital | No change – only par value adjusted |
| Total Shareholder Value | Unchanged | Unchanged |
| Reason | Capitalize retained earnings | Make price more accessible |
No. Immediately after the bonus, the total value stays the same because the share price adjusts proportionally. Future price movements determine actual gains or losses.
On the ex‑bonus date. If you buy shares on or after that date, you are not entitled to the bonus shares, and the price already reflects the adjustment.
Generally, bonus shares are issued in whole numbers. Any fractional entitlement is usually settled in cash or rounded down.
It is generally positive for liquidity and may indicate a healthy company, but it does not add immediate value. Over time, if the company performs well, the price may rise from the adjusted level.
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