How does the bonus shares calculation works?

How does the bonus shares calculation works?

The calculation for bonus shares involves distributing additional shares to existing shareholders at no cost. The calculations is determined by a predetermined ratio announced by the company. Here's how the calculation usually works:

Bonus Ratio Announcement: The company announces a bonus issue with a specific ratio, such as 1:1, 2:1, etc. This ratio indicates how many bonus shares you will receive for each share you already hold in your Demat account.

Calculation: Let's assume you own 100 shares of a company, and it announces a 1:1 bonus issue. In this case, for every one share you currently own, you will receive one bonus share. So, with your 100 shares, you will receive an additional 100 bonus shares.

Adjustment of Total Shares: After the bonus issue is implemented, the total number of shares in circulation increases. In the example above, your shareholding will increase from 100 shares to a total of 200 shares (100 original shares + 100 bonus shares).

Market Price Adjustment: While the number of shares you hold increases, the market price of the stock is usually adjusted proportionally. If the stock was trading at $50 per share before the bonus issue, the price might adjust to around $25 per share after the 1:1 bonus issue.

Demat Account: The bonus shares are then credited to your Demat account. For instance, if you had 100 shares before the bonus issue, you will now see 200 shares in your account after the bonus shares are credited.

It's important to note that bonus issues do not result in a direct increase in your investment value, as the market price of the stock adjusts in proportion to the bonus ratio. The primary aim of bonus issues is to reward existing shareholders with additional shares while maintaining the company's overall market capitalization.