Bonus Share vs Stock Split – What’s the Difference?

May 22, 2025
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Bonus Share vs Stock Split – What’s the Difference

If you are new to the stock market, you have probably come across terms like Bonus Shares and Stock Split. They might sound complicated, but don’t worry, we will explain here the difference between Bonus Share vs Stock Split with simple examples. These two terms might look similar because they both involve giving you more shares, but they work in different ways.

What is a Bonus Share?

Bonus Shares are free shares, or as the name suggests, additional shares given by a company to its existing shareholders without any extra cost. These shares are issued from the company’s profits or reserve funds. In simple terms, you own some shares of a company, and out of the blue, the company gives you more shares for free. This is called a Bonus Share.  

Real-Life Example of Bonus Shares

Let’s take an example to make it easier to understand. Suppose you own 100 shares of HDFC Bank, and the company declares a 1:1 bonus. This means that for every share you already own, you will get one additional share for free. So, if you had 100 shares, you would now have 200 shares after the bonus issue.  

  • Before Bonus: 100 shares. 
  • Bonus: 1:1 ratio (i.e., you get 1 new share for every share you own). 
  • After Bonus: 100 + 100 = 200 shares

But the value will be the same.

How Does a Bonus Share Work?

When a company issues bonus shares, it doesn't take any money from you. Instead, it capitalizes its reserves, like its retained earnings, to issue new shares. This increases the number of shares in circulation, which often leads to a drop in the market price of the shares. However, the total value of your holdings remains the same.

Why Should You Care About Bonus Shares? 

  • It’s a Good Sign: Bonus shares show that the company is doing well and has profits. It’s like getting rewarded for being a shareholder.  
  • Increased Liquidity: More shares in the market mean it’s easier to buy and sell the stock.

What Happens to the Share Price? 

As we mentioned earlier, when bonus shares are issued, the price of the stock drops, but your total investment value remains the same. This price adjustment happens automatically. When a company announces bonus shares, it uses its profits or savings to give you the extra shares. Even though you have more shares now, the price per share will drop.  

  • Price Change: If the share price was ₹1000, it may drop to ₹500 after a 1:1 bonus issue.  
  • Note: The total value of your investment doesn’t change. For example, if you had 100 shares worth ₹1000 (₹1,00,000 total), after the bonus, you’ll have 200 shares worth ₹500 each (₹1,00,000 total). You just own more shares now, but the total value stays the same.

Pros and Cons of Bonus Shares

Here are the pros and cons:

Pros of Bonus Shares Cons of Bonus Shares
  • No cost to shareholders: You don’t have to pay for the extra shares. It's like getting free food at a restaurant, where you're not paying for it, but you still get it. 
  • Increased liquidity: More shares in the market make it easier for people to buy and sell. This is called “liquidity.” The more liquid a stock is, the easier it is to trade. 
  • Positive signal to the market: When a company gives bonus shares, it often means the company is doing well. This is a good sign because it shows the company has profits and wants to share them with you. 
  • No real gain: Even though you get more shares, the total value of your investment doesn’t change. It’s like getting more of something, but it’s still worth the same. 
  • Stock price adjustment: When bonus shares are given, the stock price usually goes down. This happens because there are now more shares in the market, and the value is spread across those shares. 
  • Dilution of Earnings Per Share (EPS): This might sound complicated, but it’s simple. When the company gives out bonus shares, the company’s earnings (profits) are spread across more shares. This means the Earnings Per Share (EPS) goes down because there are more shares to divide the earnings between.

What is a Stock Split? 

A stock split is when a company increases the number of shares in the market by dividing the existing shares into smaller parts. In a stock split, shareholders receive additional shares in proportion to the ones they already own, but the total value of their holdings remains unchanged.

Real-Life Example of Stock Split

Let’s take the example of Reliance Industries to explain how a stock split works. Suppose you own 100 shares of Reliance, and the company announces a 2-for-1 stock split. This means for every share you own, you will receive one additional share for free. So, if you had 100 shares before the split, you would now have 200 shares after the split.  

  • Before Stock Split: 100 shares. 
  • Stock Split: 2:1 ratio (i.e., for every share, you get one additional share). 
  • After Stock Split: 100 + 100 = 200 shares. 

However, the price of the stock will drop. If Reliance’s stock price was ₹2000 before the split, it will be adjusted to ₹1000 after the split. Therefore, even though you have more shares, the price per share is now lower.

How Does a Stock Split Work? 

In a stock split, the company divides each share into multiple shares. So, if you owned 1 share, and the company announces a 2-for-1 stock split, you would now own 2 shares, but the price per share would be halved.  A stock split is usually done by companies when the stock price becomes too high and they want to make the stock more affordable for retail investors. By doing a stock split, companies aim to increase the liquidity of their stock and make it more accessible to smaller investors. 

Why Should You Care About Stock Splits? 

Stock splits don’t change the value of your investment. However, they make the stock more affordable, which can attract more buyers and increase trading volume.

  • Shares Become Cheaper: The price per share becomes more affordable, which may attract more investors.  
  • Increased Liquidity: Just like with bonus shares, more shares in the market mean it’s easier to buy and sell the stock.  

What Happens to the Share Price? 

The price per share will decrease after a stock split, but the total value of your investment will stay the same.  In a stock split, the company divides each share into smaller pieces. The total value of your investment stays the same, but the price per share decreases.  

  • Price Change: If the share price was ₹2000, it may drop to ₹1000 after a 2-for-1 split.  
  • No Change in Total Value: If you had 100 shares at ₹2000, your total value was ₹2,00,000. After the split, you’ll have 200 shares at ₹1000, and your total value will still be ₹2,00,000. You just have more shares now, but the price per share is lower. 

Pros & Cons of Stock Split 

Here are the pros and cons:

Pros of Stock Split Cons of Stock Split
  • Increased Affordability: A stock split makes the price of each share cheaper, which means more people can buy it. 
  • Improved. Liquidity: When a stock split happens, there are more shares available in the market. This makes it easier to buy or sell the stock because there are more shares in circulation. 
  • Positive Market Perception: Investors often see stock splits as a sign that the company is doing well. It’s like the company saying, "We’re growing, and now we want more people to invest in us." 
  • No Real Gain: While you might own more shares after a stock split, the total value of your investment stays the same. You just have more pieces of the same pie. 
  • Stock Price May Fall: After a stock split, the price per share drops. This can sometimes make investors worry because the stock looks cheaper, and people may think the company is struggling. 
  • Does Not Change the Company’s Fundamentals: A stock split is just a change in the number of shares and the price. It doesn’t change how much money the company is making or how strong it is. It’s like slicing a pizza into more pieces, so you still have the same amount of pizza, just more slices.

Difference Between Bonus Share vs Stock Split

Here are the differences between a bonus share vs a stock split:

Feature Bonus Share Stock Split 
What is it? Free shares are given to shareholders. Existing shares are divided into more shares.
Source of Shares Issued from the company’s reserves. Issued by dividing the existing shares.
Effect on Price Price per share falls, but the total value stays the same. Price per share decreases, but total value remains unchanged.
Investor’s Gain You get more shares, but no real increase in value. You get more shares, but no real increase in value.
Example HDFC Bank announces 1:1 bonus shares. Reliance announces a 2-for-1 stock split.
Why it’s Done To reward loyal shareholders and increase liquidity. To make shares more affordable and increase liquidity.

Conclusion

In conclusion, Bonus Shares and Stock Splits both increase the number of shares, but for different reasons. Bonus shares reward shareholders, while stock splits make shares cheaper. In both cases, your total investment value remains the same. The real growth of your investment depends on the company’s performance. We hope this blog has been helpful to you.

About the Author

Saniya

I'm a finance content writer with a BBA in FinTech, passionate about simplifying money matters for everyday Indians. I break down complex topics like investments, savings, and digital finance into easy, relatable content. My goal is to help you in a way that’s easy to understand, jargon-free, and actually useful in real life.

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