What is the impact of a bonus issue on equity holdings and F&O positions?
A bonus issue is the distribution of free shares by the company to eligible shareholders. See What is a Bonus issue?
Impact on holdings
The share price falls in the ratio of the bonus allotment. However, this does not affect the overall value of holdings. Zerodha shows the bonus quantity only after they are credited.
Mr A holds 10 shares of Reliance at ₹1000 each and the company has announced a bonus issue in the ratio of 2:1. So Mr A will receive 2 bonus shares of Reliance for every share held on the record date. See What does record date and ex-date mean? . Mr A’s holdings will now have 30 shares of Reliance after the bonus issue (10 originally bought + 20 bonus shares).
In the above example, the share price will drop to ₹333.33 [1000/(2+1)] but this won’t change the value of Mr A’s holdings.
Value of holdings before bonus: 10 × 1000 = ₹10,000
Value of holdings after bonus: 30 × 333.33 = ₹10,000
If a company announces a 1:2 bonus and an investor holds just 1 share, they will get 0.5 shares as a bonus. The 0.5 shares are known as partial bonus shares that are settled in cash, and the funds will be credited to the investor's primary bank account.
Impact on P&L
P&L will show an artificial drop until the bonus shares are credited to the demat account. Once the shares are credited, the P&L will be updated. It takes up to 15 days for the bonus shares to be credited. An SMS from CDSL will be sent when the shares are credited.
Impact on F&O positions
Option strike prices are divided by the factor of the bonus issue ratio. For a 1:1 issue, the factor is 2. The future and options prices are divided by a factor of 2 to maintain the same contract value as before the bonus issue. The revised lot size is arrived at by multiplying the factor with the current lot size.
Bonus ratio: 1:1
Strike price: 100
Lot size: 500
Revised lot size: 1000 (i.e., 500×2)
Revised strike price: 50 (i.e, 100/2)
Do a hard refresh by pressing CTRL+Shift+R on Kite web, or clear the app cache on Kite mobile if the revised market lot size is not updated. See How do I clear the Kite app data?