• Bonus Issue v/s Stock Splits

    Below are the key differences between Bonus Issue and Stock Split

    1. A bonus issue is additional share issued to the shareholders while Stock split refers to split of existing shares
    2. For Bonus issue, reserve fund is converted to equity capital while for split, there is no change in equity capital
    3. For Bonus issue face value of stock remained unchanged, while for stock split face value is also decreased as per same ratio as split
    4. Bonus issue sends a fundamentally strong signal about the health of the company as more equity has been given to existing shareholders while stock split is done only to reduce value of share, increase number of stocks and liquidity in the market – may not send such a strong signal to the shareholders
    5. Bonus share issue leads to increase in equity capital while stock spilt does not change equity capital at all
    6. Bonus issue leads to bonus stripping – which happens when drop in share price is used by the shareholders to book notional loss which is not the case for Stock Split. Income tax acts across the countries have introduced measures to curb bonus stripping.

    Similarities: Bonus Issue and Stock Split have some similarities as well

    1. Both of them send signal about growth prospect of the company
    2. Both increases number of tradable shares in the stock market, hence increases liquidity
    3. Also, price is reduced, hence stocks become attractive to small retail investors as well

     

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