What are Bonus Shares?

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Feb 20, 2023

Bonus shares are additional shares that a company issues to its existing shareholders without any additional payment. The issuing of bonus shares is also known as a stock split or a bonus issue. It is typically done in a ratio to the number of shares already held by the shareholder. For example, if a company issues a 1:2 bonus, this means that for every 2 shares a shareholder holds, they will receive an additional 1 share.

The purpose of issuing bonus shares is to increase the number of outstanding shares and increase the liquidity of the stock, making it easier for investors to trade. In addition, issuing bonus shares can also signal the company’s financial strength and its confidence in its future prospects. Which can help to increase the visibility of the company and attract more investment.

It’s important to note that while receiving bonus shares can increase an investor’s total ownership in a company, it does not directly increase the value of the investment. The value of the investment is determined by the market price of the stock, which can be influenced by many factors including the company’s financial performance and overall market conditions.

It’s important to note that not all companies issue bonus shares, and the decision to issue bonus shares is typically made by the company’s board of directors. Before investing in a company, it’s a good idea to review its financial health and performance, as well as its history of issuing bonus shares or other forms of equity.