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What impact will a bonus issue have on my equity holdings and F&O positions?

In a bonus issue, shareholders of a company are allotted additional shares for free in a fixed ratio (which is announced by the company). A bonus issue can have an effect on your holdings, P&L, and F&O positions in the following manner:

Effect on holdings

In a bonus issue, the share price reduces in the ratio of the bonus allotment. For example, you hold 10 shares of Reliance that you purchased at Rs 1000 each. The company has announced a bonus issue in the ratio of 2:1. This means you will receive 2 bonus shares of Reliance for every share you hold on the Record Date. In other words, if you held 10 shares in Reliance, after the bonus issue your holdings will contain 30 shares (i.e. 10 originally bought + 20 bonus shares). 

In the above example, the share price will theoretically drop to Rs 333.33 [1000/(2+1)]. This does not affect the overall value of your holdings: 

Value of holdings before bonus: 10 x 1000 = Rs. 10,000
Value of holdings after bonus: 30 x 333.33 = Rs. 10,000

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 the 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/Console 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.