A bonus issue occurs when a company gives extra shares to its
existing shareholders for free. Let's examine how this affects your equity
holdings and futures and options (F&O) positions.
Impact on Equity Holdings
When a bonus issue occurs, the share price drops according to the bonus ratio,
but the overall value of your holdings remains the same. The additional shares
are credited to your account and are typically visible within T+2 Days from the
record date.
Example Scenario
Suppose Mr. A holds 10 shares of Reliance, each worth ₹1,000. If Reliance
announces a 2:1 bonus issue (meaning for every share Mr. A owns, he will get 2
additional shares), here's what happens:
Before the Bonus Issue: Mr. A has 10 shares at ₹1,000 each, totaling ₹10,000.
After the Bonus Issue: Mr. A gets 20 more shares for free (2 for each of his 10
shares). Now, he has 30 shares in total.
Adjusted Share Price: The share price will adjust to ₹333.33 (calculated as
₹1,000 / (2+1)). So, the total value of Mr. A's holdings remains ₹10,000 (30
shares × ₹333.33).
If the bonus ratio were 1:2 (one bonus share for every two shares held) and Mr.
A held only one share, he would receive 0.5 shares as a bonus. Since fractional
shares can't be credited, Mr. A would get the equivalent value in cash
deposited into his bank account.
Impact on Profit and Loss (P&L)
Initially, your P&L might show a temporary drop until the bonus shares are
credited to your account, which can take upto 2 trading days(T+2) from the
record date. Once credited, the P&L will update to reflect the additional
shares. You will also receive an SMS notification from CDSL when the shares are
credited.
Impact on F&O Positions
For futures and options (F&O) contracts, the strike prices and lot sizes
are adjusted based on the bonus ratio to maintain the same contract value.
Example Scenario
If there's a 1:1 bonus issue (one new share for each existing share):
Original Strike Price: ₹100
Original Lot Size: 500
After the bonus issue:
Revised Strike Price: ₹50 (₹100 divided by the bonus factor of 2)
Revised Lot Size: 1,000 (500 multiplied by the bonus factor of 2)
This adjustment ensures that the overall value of the F&O contracts remains
consistent with the new number of shares.
Key Takeaways
Equity Holdings: The number of shares increases, but the total investment value
stays the same. The share price adjusts accordingly.
P&L Impact: There may be a temporary drop in P&L until the bonus shares
are credited.
F&O Positions: Strike prices and lot sizes are adjusted to reflect the
bonus issue.
Understanding these impacts helps you manage your investments effectively
during a bonus issue.