Learn · Corporate action
Bonus issue vs stock split: what is the difference
A bonus issue gives free extra shares from company reserves and leaves face value unchanged, while a stock split divides each share into smaller units by reducing the face value. Neither changes your investment's total value.
In one line
In a bonus issue the company gives you free additional shares from its reserves and the face value per share stays the same, whereas in a stock split each share is divided into more shares by cutting the face value, so a 2-for-1 split turns a 10 rupee face value into 5, but in both cases your total holding value is unchanged on the action.
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What each action does to your holding
In a bonus issue, say 1-for-1, the company capitalises its reserves and hands every shareholder one extra share for each one held. Your share count doubles, the price roughly halves, and the face value per share, often 10 or 1 or 2 rupees, does not change. The shares come free, funded out of accumulated profits the company chooses not to keep idle on the balance sheet.
In a stock split, the company slices each existing share into smaller pieces by reducing the face value. A 2-for-1 split on a 10 rupee face value stock makes it two shares of 5 rupee face value each. Your share count rises and the price falls proportionally, exactly like a bonus on the holding side, but the funding source and the accounting are different.
Why companies do it, and why the value is unchanged
Both actions are cosmetic for wealth. If you held one share at 2,000, a 1-for-1 bonus or a 2-for-1 split leaves you with two shares near 1,000 each, the same 2,000 of value. Nothing is created. What changes is the optics and the liquidity. A lower per-share price feels more accessible to retail buyers and can improve trading volume, which is the real reason boards announce them.
The signalling differs slightly. A bonus is often read as a sign of confidence, since it pays out of genuine reserves and implies the company expects to keep earning. A split is more purely about affordability. For your portfolio math, though, treat both the same on the day they take effect: more shares, lower price, identical total.
FAQ3 reader questions · AEO-eligible
Common questions on bonus vs split.
Is a bonus issue better than a stock split?
Neither makes you richer on the action, since both keep your total holding value the same. A bonus is funded from reserves and often read as a confidence signal, while a split simply reduces the face value to lower the per-share price.
Does face value change in a bonus issue?
No. In a bonus issue the face value per share stays the same and you receive additional shares from the company's reserves. It is a stock split that reduces the face value.
Do I pay tax on bonus shares?
Bonus shares are not taxed when received. Their cost of acquisition is treated as zero, so capital gains tax applies on the full sale value when you eventually sell them, based on your holding period.
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