A bonus issue is when a company distributes additional shares to its existing shareholders for free. This is often done as an alternative to paying out dividends. While the number of shares a shareholder owns increases, the total value of their investment remains the same.

Example Scenario

Let's say Mr. A owns 100 shares of a company, with each share priced at ₹10. The company announced a 2:1 bonus issue, meaning for every share Mr. A owns, he will receive two additional shares for free.

Here's how it works out:

• Before the Bonus Issue: Mr. A has 100 shares, each worth ₹10. So, his total investment value is 100 shares × ₹10 = ₹1,000.
• After the Bonus Issue: Mr. A will receive 200 additional shares (2 for each of his 100 shares). This means he now has 300 shares in total. However, the price of each share will adjust to maintain the same total investment value. The new share price will be ₹3.33 (calculated as ₹1,000 / 300 shares).

Even though Mr. A now has more shares (300 shares), the overall value of his investment is still ₹1,000.

Key Points to Remember

• The share count increases, but the total value of the investment remains unchanged.
• The price per share is adjusted accordingly after the bonus issue.
• To be eligible for a bonus issue, shareholders must purchase shares before the ex-date, which is the company's cutoff date.

This process ensures that shareholders receive additional shares proportionate to their existing holdings without any change in the overall value of their investment.