When Bonus Shares Are Credited in Demat Account?
When bonus shares are credited to a demat account, it signifies a company’s decision to reward its shareholders by issuing the additional shares at no extra cost. This corporate action is usually announced along with the company’s financial results and reflects its commitment to return value to investors.
Understanding the timeline and procedure for bonus share allocation is crucial for investors as it impacts their overall portfolio and investment strategy. This blog looks into the eligibility criteria, benefits and disadvantages of bonus shares.
What are Bonus Shares?
Bonus shares are additional shares given to existing shareholders at no extra cost, typically in proportion to their current holdings. Companies issue bonus shares as a way to distribute retained earnings and rewarding the shareholders. This corporate action is often seen as a positive signal about a company’s financial health and growth prospects.
For example, if the company announces a bonus share in the ratio of 4:1, which means that for every share you own in the company, you will get 4 bonus shares. If you own 100 shares of a company, then you will get 400 bonus shares.
The process involves several steps, starting with the company’s announcement of the bonus issue and record date. Let’s look at the eligibility criteria for getting bonus shares.
Eligibility of Bonus Shares?
Eligibility for bonus shares is primarily determined by the record date announced by the company. All the investors that hold the shares of the company on the record date are eligible to get bonus shares.
For example, suppose a company announces a bonus share issue with the record date as 31 October 2024, i.e., Thursday. As the settlement cycle follows a “T+1” schedule in India, the investors must purchase the shares on or before 30 October 2024 to appear in the list of shareholders on the record date to get the benefit of bonus shares.
When Bonus Shares are Credited to the Demat account?
So, the big question is, when will the bonus shares be credited to the demat account? Earlier, it took around 15 days for the bonus shares to get credited to the demat account of the investors, but recently, SEBI issued a circular enabling “T+2” trading of bonus shares, where T is the record date and “T+1” day is the date of allotment. Let us understand this with the help of an example.
Recently, Reliance announced the decision to issue bonus shares in the ratio of 1:1 on 5 September 2024, which means the investors will get 1 bonus share for each share they own. The record date was announced as 28 October 2024, which makes the date of allotment as 29 October. The shares will be credited to the Demat account of investors on 29 October, and the bonus shares will be available to trade on 30 October 2024.
Understanding these details is essential for investors as it helps in managing the expectations and planning their investment strategies effectively. Overall, bonus shares can enhance the value of shareholder’s portfolio and make them an important aspect of equity investment.
Benefits of Bonus Shares
Bonus shares offer several benefits to both companies and shareholders. These advantages are mentioned below:
- One of the primary advantages is the increased number of shares. When a company issues bonus shares, it increases the number of shares an investor owns without requiring additional investment. If the company performs well in the future, then due to an increased number of shares, the investors can get better returns.
- Bonus shares improve liquidity in the market. With more shares available, trading becomes easier. Increased liquidity positively impacts the stock price over time.
- From the company’s perspective, issuing bonus shares can strengthen investors’ confidence and signal financial health. It demonstrates that the company is performing well financially and can distribute profits, which can attract new investors and boost overall market perception about the company.
- Investors don’t have to pay any taxes on the bonus shares immediately.
- The share price of the company decreases as it adjusts according to the bonus issue ratio. The lower price makes the share affordable for investors.
Disadvantages of Bonus Shares
The disadvantages of Bonus shares are:
- Bonus shares increase the total number of available shares to trade, which can reduce ratios such as Book Value per Share (BVPS), Earnings per Share (EPS), etc.
- Investors may begin to expect bonus shares each time the company doesn’t announce a dividend. Failure to meet investor expectations can negatively impact the company’s share price.
- Issuance of bonus shares doesn’t provide any immediate monetary gain.
Conclusion
In conclusion, while bonus shares can enhance shareholder value and signal a company’s financial strength, they also carry some drawbacks. Therefore, it’s crucial for investors to weigh both the advantages and disadvantages of bonus shares. A thorough understanding of the timeline of bonus shares can help shareholders make informed decisions and manage their portfolios more effectively.
Frequently Asked Questions (FAQs)
What are bonus shares?
Bonus shares are additional shares given to existing shareholders at no extra cost, in proportion to their current holdings.
When will bonus shares be credited to my demat account?
Bonus shares are credited to the Demat accounts on “T+1” day, where T is the record date.
How do I know if I’m eligible for bonus shares?
To be eligible, you must hold shares in the company on the record date. Companies announce their bonus shares through public notices, which include details about the record date.
What should I do if I don’t see my bonus shares in my demat account?
If you haven’t received your bonus shares within the expected timeframe then contact your broker or the company’s investor relations department for updates.
Can I sell my bonus shares immediately after they are credited?
Yes, once the bonus shares are credited to your demat account, you can sell them like any other share.
