What is a Bonus Share And Its Types?

Have you ever received free shares in your Demat account without paying anything extra? Let’s understand with an example, imagine a cake cut into 4 slices. Now you cut each slice in half, so you have 8 slices. More slices, but same cake. That’s how bonus shares work. You get more shares, but the share price drops proportionately, so your total value doesn’t change immediately. Here we will simplify the concept of Bonus Share.

What are Bonus  Shares?

Bonus shares are basically 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. Bonus shares are distributed in a specific ratio, like 1:1 or 1:2.   

Let’s take a real example. Suppose you own 10 shares of Infosys. Infosys announces a 1:1 bonus issue. That means for every 1 share, you get 1 extra share for free. So now, you will have 20 shares.

Note that the number of shares increases, but the value doesn’t change. If you have shares worth ₹75 each, your total investment value will still be ₹7,500. But after the bonus shares, the value of each share will reduce to ₹37.50, keeping your total investment value the same.

But if the value stays the same, then what’s the benefit of a bonus share? Let’s understand with an example: After receiving bonus shares, your total number of shares increases. Let’s say, if you had 100 shares worth ₹7,500, after receiving bonus shares in a 1:1 ratio, you’ll have 200 shares for the same ₹7,500. So, you get more shares without spending any extra money.  

Real-Life Examples of Bonus Shares

Well, has any company ever issued bonus shares to its shareholders? The answer is yes, many well-known companies have done this. For example: 

Company	Bonus Ratio	Year
Infosys	1:1	2018
Wipro	1:3	2019
Asian Paints	1:2	2016
TCS	1:1	2018
HDFC Bank	1:1	2011

These are just a few examples. Bonus shares are common in companies with strong cash reserves and consistent profits.

How Does Bonus Ratio Work?

Let’s understand how it works:

Bonus Ratio	Meaning	If You Own 100 Shares
1:1	1 Bonus share for every 1 share held	You get 100 extra shares
2:1	2 Bonus shares for every 1 share	You get 200 extra shares
1:2	1 Bonus share for every 2 shares	You get 50 extra shares
3:5	3 Bonus shares for every 5 shares	You get 60 extra shares

Note: Fractions are generally rounded down. So in 1:2 bonus, if you have 5 shares, you’ll get 2 shares, not 2.5.

What If You Have Only 1 Share in a 1:2 Bonus Issue?

If you only have 1 share and the company announces a 1:2 bonus (meaning 1 bonus share for every 2 shares you own), you’d technically get half of a bonus share (0.5). But since you can’t get half a share, there are two things that might happen:

• Cash in Lieu: You might get cash instead of the 0.5 share. For example, if each share is worth ₹600, you’d get ₹300 in cash.
• Rounded Down to Zero: You might get nothing at all because 0.5 is less than 1 full share.

Important Key Term of Bonus Share: You Must Know 

Here are some important key terms:

Term	Meaning
Record Date	The cut-off date. If you’re a shareholder on or before this date, you’ll get bonus shares.
Ex-Date	Usually 1 or 2 days before the record date. If you buy on or after this, you won't get bonus shares.
Ex-Bonus	The stock is without the bonus. You won’t get a bonus if you buy during this time.
Cum-Bonus	Stock is with a bonus benefit. You’ll get a bonus if you buy during this period.

Who is Eligible for Bonus Shares?

Anyone who holds the company’s shares before the record date is eligible to receive bonus shares. Remember, you must buy the shares before the ex-date to be eligible. Because it takes T+1 day (Trade day + 1) for shares to reflect in your Demat account.

Imagine a teacher giving free chocolates to students, but only to those whose names are written on the attendance list on a specific day. Bonus shares work the same way. It simply means that if your name is on the company’s list of shareholders as of a certain date (called the Record Date), you will receive bonus shares.

When Should You Buy the Shares? 

• Record Date: This is the date the company checks who is holding its shares. If your name is on this list, you’re in.
  
• Ex-Date: This is 1 or 2 days before the Record Date. If you buy on or after the ex-date, you won’t get bonus shares.

For  Example,

• Record Date = 10th June
• Ex-Date = 9th June

If you buy the share on or before 8th June, it will reflect in your name by 10th June. But if you buy on the 9th or later, your name won’t show up.

Note: You don’t need to hold the shares for months. Even if you buy the stock just 2–3 days before the record date (but before the ex-date), you can still get bonus shares. So, it's not about "how long" you’ve held the shares. It's about whether your name is on the list on the right day.

Types of Bonus Shares

Here are the two types of Bonus shares

Fully Paid Bonus Shares

• These are completely free and credited to your Demat account.
• No payment or action required.
• Most Indian companies issue this type.

Partly Paid Bonus Shares

• Rare in India.
• The company gives shares, but asks you to pay the unpaid amount later.
• Example: If the face value is ₹10 and you get a bonus of ₹10 but the paid-up is only ₹5, you’ll need to pay ₹5 later.

Why Do Companies Issue Bonus Shares?

Here are the main reasons:

• To reward existing shareholders as a goodwill gesture that gives a feeling of getting more.
• To improve liquidity, a Lower share price (after bonus) = easier for small investors to buy.
• To make the share price look affordable, especially when the share price is very high.
• Confidence in future growth, where the Company says, “We are doing so well, we can afford to give extra shares”.

It looks like a successful business gives you a bigger piece of the pizza because the pizza has grown.

Advantages of Bonus Shares

Here are the advantages of a bonus from the point of view of the Investor and the Company:

From the Investor’s View	From the Company’s View
You get extra shares, no money spent. Your total investment increases in value over time (if the stock performs well). Improves your confidence in the company.	Shows financial strength. Increases public interest in stock. Keeps stock price affordable (due to dilution).

Disadvantages of Bonus Shares

Here are the disadvantages of a bonus from the point of view of the Investor and the Company:

From the Investor’s View	From the Company’s View
No extra money comes to you directly (unlike dividends). Stock price adjusts (falls) proportionally, so total value initially remains the same. Confusion among new investors about the price drop.	Reduces reserves. No fresh capital raised (unlike rights issue). It may mislead retail investors who chase “free shares”.

Also read: Bonus Share vs Stock Split - What’s the Difference?

Conclusion

In conclusion, Bonus shares may seem like “free gifts”, but remember, it’s just a way of rewarding loyal shareholders without paying them cash. It's like getting more apples from your tree, even though the size of the tree hasn’t changed. We hope this blog has been helpful to you.