Capital Market Chronicles – Episode 145: DIFFERENCE BETWEEN DIVIDENDS & BONUS SHARES (Part II) 🎭📈
Bonus Shares – The “Now You Have More” Trick 🎩✨
If dividends are like getting a cash prize 🏆 for holding a company’s shares, bonus shares are like someone magically cloning your existing shares without you paying a single rupee! 🪄
Bonus shares are extra shares issued to existing shareholders free of cost. They come from the company’s reserves or retained earnings — so, no, the company isn’t printing money; it’s just reshuffling the pie so that you get more slices 🍰.
How They Work 🛠️
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Issuance Ratio: Companies announce them in ratios like 1:1 or 2:1. A 1:1 means for every share you own, you get one more (like buying one samosa and getting another free 🥟).
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Impact on Share Price: The market price typically adjusts after the issue. If a share was ₹200 before a 1:1 bonus, expect it to trade around ₹100 after. Don’t panic — your total investment value stays the same. It’s like cutting the same pizza into more slices 🍕.
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Effect on Financial Statements: Bonus shares increase share capital and reduce reserves, but total equity remains the same — a neat accounting magic trick.
Example in Action 📊
Company X, face value ₹10, announces a 1:1 bonus. You own 100 shares worth ₹200 each.
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Before bonus: 100 shares × ₹200 = ₹20,000.
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After bonus: 200 shares × ₹100 = ₹20,000.
You have more shares, but the total value hasn’t changed (yet).
Why Companies Issue Bonus Shares 💡
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Conserve Cash – Reward shareholders without spending cash 💵.
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Increase Liquidity – More shares in circulation = easier trading.
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Boost Confidence – Signals optimism about future performance 🚀.
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Cost-Effective – No brokerage fees or cash outflow.
The Big Picture 🎯
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For Investors: You get more shares, the cost per share drops, and you might benefit in the long run if prices rise. But in the short term — value stays the same.
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For Companies: A clever way to keep investors happy without emptying the cash reserves.
Dividends vs. Bonus Shares – Final Take 🍵
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Dividends: Direct income → cash in hand now 🪙.
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Bonus Shares: More shares → potential growth later 📈.
Both are ways of saying “Thanks for sticking with us”, but the flavour differs. A wise investor knows when to enjoy the dessert now and when to save it for later.
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