Difference Between Bonus Share And Stock Split

Two of the terms that are most frequently used by businesses that are publicly listed are bonus shares and stock splits. In actuality, these are the steps that these corporations have done to increase the number of traded shares, not just phrases. Continue reading to learn the distinction between a bonus and split stocks if you're unsure about these two words. In this post, we'll explain what bonus shares and split shares are as well as how they apply to investors. Let's start with the Difference Between Bonus Share And Stock Split.

What is a Bonus Issue?

Corporate actions like bonus issues involve companies offering extra shares to existing shareholders at no additional cost. Each shareholder receives an additional share based on the number of shares he or she already holds.

A bonus issue may be sought as an alternative to dividend payouts. Bonus shares can help companies capitalize on their reserves. An issue that increases shares while maintaining investment value is called a bonus issue.

Pros and Cons of Bonus Shares

Pros:

• Bonus shares tend to reduce stock prices to a significant degree. Reduced stock prices attract more investors, which increases the reach of stocks. It allows investors with low capital to invest in company stocks without worrying about the price.

• Profit capitalization is what is meant by bonus shares. As a result, the company becomes more appealing to investors, and its creditworthiness increases.
• By offering more shares to investors, the chances of obtaining good dividends in the future increase.

Cons:

• As a result, the sentiment in the market changes, causing stock prices to fluctuate more.

• A plethora of permissions and regulatory approvals must be obtained before Bonus shares can be issued.

• This was all about the bonus shares meaning. Now let's see what split stocks are!

What is a Stock Split?

To increase the number of outstanding shares, a company issues additional shares to present shareholders. The share price and market capitalization of a company remain unchanged when a stock split increases the number of shares, but the number of shares decreases proportionally. The face value of shares also decreases proportionately.

Pros and Cons of a Stock Split

Pros:

• The stock price is reduced so that even investors with a small budget can buy them.
• As a result, the ownership base increases due to the increase in traded shares.

Cons:

• Splitting a stock is a lengthy and expensive process.
• Prices of stocks become more volatile because of it.

Bonus Issue vs Stock Split

A bonus share is offered to existing shareholders as an additional share. On the other hand, a stock split involves the division of an existing share into multiple shares.

Shareholders who already own bonus shares benefit from them. Investors, both current and future, benefit from split stocks.

Whether the company is splitting shares or issuing bonus shares, its fundamentals and value remain unchanged. Neither its revenue nor profits change. Stock face values and company reserves are the only things that change.

Difference between Bonus issue & Stock Split

A stock split divides a single share into two or more shares according to the split ratio, whereas a bonus issue gives current shareholders an additional share. Existing shareholders gain from bonus shares, and the stock split can be advantageous to both them and future investors.

The company's fundamentals won't change as a result of the bonus and stock split; the issued share capital, revenue, and profit will all remain the same. The only things that will change are the face value and reserves capital.

Suppose the corporation decides to split its shares, giving each share a face value of five instead of ten. In contrast to bonuses, where the face value remains the same but the price is adjusted in accordance with the bonus ratio, stocks will double in quantity and their price will be adjusted. And If you want to learn all technicals of the stock market, you can go for our stock market technical analysis course.

Bottom Line

Publicly traded corporations may cut the price of their stock to make it more accessible to investors through stock splits and bonus shares. Both operations increase the number of shares, but they have no impact on the company's capitalization or worth. Small and inexperienced investors might benefit greatly from these measures by purchasing additional shares and taking advantage of advantages like liquidity and marketability.