A bonus issue is the distribution of free shares by the company to the existing shareholders. A company may decide to distribute additional shares as an alternative to
dividend
payout. In a bonus issue, the number of shares increases, but the investment value remains the same.
Shares must be purchased before the
ex-date
to be eligible for a bonus.
Example scenario
Mr A holds 100 shares of a company at ₹10 each. If that company announces a 2:1 bonus, that is, for every one share, the shareholder will receive two shares for free, Mr A will receive 200 shares for the 100 shares held in the demat account, and Mr A's total holdings will be 300 shares. However, the investment value will remain the same.
- Value of investment before Bonus issue: 100 × ₹10 = ₹1000
- Value of investment after Bonus issue: 300 × ₹3.33(300/1000) = ₹1000
If you partially sell your holding and only bonus stocks remain. Your buy average follows the First In, First Out (FIFO) method, where you sell the stocks you purchased first. If you sell all your originally purchased stocks and hold only bonus stocks, your buy average and invested value show as N/A on Kite web and 0 on Kite app because bonus stocks are credited at zero cost and have no invested value.
To learn more, see Why are the bonus shares not in my holdings even though the price of the stock has reduced? and What impact will a bonus issue have on my equity holdings and F&O positions?