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 after a few days.
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:
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 up to 15 days. 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):
After the bonus issue:
This adjustment ensures that the overall value of the F&O contracts remains consistent with the new number of shares.
Key Takeaways
Understanding these impacts helps you manage your investments effectively during a bonus issue.