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What is a stock split?

A stock split is a corporate action where a company increases the number of shares by reducing the face value of the stock. Companies generally split shares to increase liquidity, since the price of the stock reduces after the split. A split increases the number of shares by decreasing the face value, but the total value of the investment remains the same.

Example scenario

Say if the stock’s face value is ₹10, and there is a stock split in the ratio of 2:1, then the face value will change to ₹5. If you owned 1 share of ₹10 before the split, you would now own 2 shares of ₹5 after the split. The investment value remains the same, ₹10. The table below has more scenarios:

Split Ratio Old FV No of shares you own before split Share Price before split Investment Value before split New FV after the split No of shares you own after the split Share Price after the split Investment value after the split
2:1 10 100 900 90,000 5 200 450 90,000
5:1 10 100 900 90,000 2 500 180 90,000

Visit zerodha.com/varsity/chapter/five-corporate-actions-and-its-impact-on-stock-prices/ to learn more about stock split and other corporate actions.

All the corporate actions can be viewed on this list ( DOC ).