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.
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 shared 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.
Strike price: 100
Bonus ratio: 1:1
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?