What is a Bonus Share And Its Types?
Bonus Share is an additional share distributed by a company to its existing shareholders, free of cost, in proportion to the number of shares already held by them. This is a common phenomenon where you, as a shareholder, receive additional shares for free from the company. Here we will understand what is a bonus share.
Types of Bonus Shares
Here are the two types of Bonus shares:
| Types | |
| Fully Paid Bonus Share | These bonus shares are those shares for which the shareholder has already paid the entire amount due at the time of insurance. |
| Partly-Paid Up Bonus Share | These bonus shares are those shares for which the shareholder has paid only a portion of the total amount due. |
Who is Eligible for a Bonus Share?
Shareholders who own shares of the company before the record date and the ex-date set by the company are eligible for the bonus share. So India follows the T+2 rolling system for the delivery of shares, so the ex-date is two days early of the record date.
Here, the shares must be bought before the ex-date because if an investor purchases the shares on the ex-date. They will not be credited with the ownership of the given shares by the set record date and, therefore, will not be eligible for the bonus shares.
Benefits of Bonus Shares
Here is the benefit of bonus shares:
- This improved market Perception, where the companies that issue bonus shares are often seen as financially strong, boosts investor confidence.
- They offer tax efficiency, where in many regions, they are not taxed as income when they are received. However, the capital gains may apply when sold.
- Here, this increases the shareholding without extra cost. As the shareholder receives additional shares without spending any money, this increases their total holdings.
- They enhanced the liquidity with more shares available in the market. As it becomes easier to buy and sell the stock.
Conclusion
In conclusion, bonus shares are an effective way for companies to reward their investors while preserving liquidity and signaling financial health as shareholders. Receiving bonus shares can enhance your portfolio without any additional investment. We hope this blog on “what is a Bonus Share” has been helpful for you.
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