What impact will a bonus issue have on my equity holdings and F&O positions?
A bonus issue is when a company allots free shares to its existing shareholders. These allotments typically come in a fixed ratio such as 1:1, 2:1, 3:1 etc.
Effect on Holdings
When a bonus is issued, the share price reduces in the ratio of the allotment. For example in a 1:1 split, the share price will reduce by 50%. You will hold 2 shares if you held 1 share before the bonus issue
Please note that your investment value does not increase here. Your share price reduces and the remaining investment value is given to you in the form of bonus shares.
Note: In cases where you hold partial shares, the company will settle the bonus issue in the form of cash and will be directly credited to your registered bank account by company’s RTA managing the bonus issue.
For example, if the company announces a 1:2 bonus issue and you own one share of the company, you should receive 0.5 shares(since this is not possible, it is settled in cash)
P&L of holdings
Until the bonus shares are credited to your Demat, your holdings in Kite/Q will show an artificial drop in P&L. Once the bonus shares are credited to your Demat, your P&L will be restored to its correct value.
You will receive an SMS from CDSL when your bonus shares are credited to your Demat which could take upto 2 weeks.
Effect on F&O positions:
Option strike prices are divided by the factor of the ratio the bonus issue. For a 1:1 issue, the ratio is 2. The future and option prices are divided by the factor of 2 to maintain the same contract value as of before the bonus issue.
If you’re unable to see the revised market lot size on Kite, please do a hard refresh Ctrl + Shift + R (on mobile, clear App Cache from Settings) and the new lot size will be updated on Kite.
To know more about corporate actions and its impact on stock prices, read this chapter on Varsity.