Well if you are investing in equity market as a long term investor you must have got bonus shares at some time or other , and  nothing is as exciting  to get number of shares increasing  when you get bonus. It is as good as getting bonus by the company when you are working.

Bonus Shares are give by company to there shareholders, these are additional shares given without any cost to existing shareholders. These shares are issued in a certain proportion to the existing holding. So, a 3  for 1 bonus would mean you get three additional shares  free of cost  for the one share you hold in that company.

For Example If you hold 100 shares of a company and a 3:1 bonus offer is declared, you get 300 shares free.
That means your total holding of shares in that company will now be 400 instead of 100 at no cost to you. It looks very good on paper but after ex-bonus share price of the company usually will be reduced in proportion to the bonus given, so for example if the price of the share is 3$ before bonus and they give 3:1 bonus the share price after bonus will be 1$ , so in theoretical terms your investment will be same that is 300$.

But, in reality, it may not happen for various reasons:

• The stock is now more liquid (more no of shares floating in the market)and there are so many more shares, it is easier to buy and sell.And traders usually hook in to lower price shares.
• A bonus issue is a signal that the company is quite strong position.
  It is also interpreted that the management would not have given the bonus shares if it was not
  confident of being able to increase its gains and distribute dividend on all these shares
  in the future.
• Bonus issue = Good health of the company.
• Usually the stock price rises when bonus is announced.

How are bonus issue and record date co-related ?

When a bonus is announced, the company also announces a record date of the bonus issue. The record
date is the date on which the bonus takes effect, and shareholders on that date are given the bonus.

What is the meaning of cum-bonus ?

After the announcement of the bonus but before the record date, the shares are referred to as
cum-bonus shares.

What is the meaning of ex-bonus ?

After the record date, when the bonus has been given effect, the shares become
ex-bonus.

I hope you enjoyed the article.

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