Why in News?
The most significant recent bonus issue news is Life Insurance Corporation of India (LIC) announcing its first-ever bonus issue since listing, with a 1:1 ratio approved on April 13, 2026.
Definition & Core Concept
- Free Shares: Shareholders do not pay any money to receive these shares.
- Ratio Based: Issued in a fixed ratio (e.g., 1:1 means you get 1 free share for every 1 you own; 2:1 means 2 free shares for every 1 owned).
- Capitalisation of Reserves: The company uses its accumulated profits (free reserves) to issue these shares. It does not bring in new cash; it simply moves money from the "Reserves" account to the "Share Capital" account.
Impact on Share Price & Valuation
- Price Adjustment: On the Ex-Date, the share price drops in proportion to the bonus ratio. If a ₹1,000 stock issues a 1:1 bonus, the price will approximately become ₹500.
- Market Cap: The total market value of the company remains the same immediately after the issue.
- Individual Wealth: Your total investment value stays the same, but the number of shares you own increases.
Benefits for the Company
- Improved Liquidity: By lowering the price per share, the stock becomes more affordable for retail investors, increasing trading volume.
- Conservation of Cash: Unlike a dividend, a bonus issue allows the company to reward shareholders without paying out cash, keeping funds available for business expansion.
- Positive Signaling: It sends a message to the market that the company is profitable and expects future growth.
Benefits for the Shareholder
- Tax Efficiency: Bonus shares are not taxed at the time of receipt (unlike dividends). They are only taxed under Capital Gains when you sell them.
- Future Dividends: Since dividends are paid "per share," having more shares after a bonus issue leads to higher total dividend payouts in the future, provided the company maintains its dividend rate.
Important Dates to Remember
- Announcement Date: When the Board of Directors proposes the bonus.
- Record Date: The cut-off date. You must be in the company’s records as a shareholder by this date to qualify.
- Ex-Bonus Date: The day the stock price adjusts. To get the bonus, you must buy the stock at least one day before this date.
Difference: Bonus Issue vs. Stock Split
| Feature |
Bonus Issue |
Stock Split |
| Source |
From Company Reserves |
Splitting the Face Value |
| Face Value |
Remains the same |
Decreases (e.g., ₹10 becomes ₹5) |
| Purpose |
Rewards shareholders using profit |
Increases liquidity & affordability |
| Share Capital |
Increases |
Remains the same |
Download Pdf
