What is bonus share? You may have seen the term “bonus share” before and wondered what it meant. A bonus share is a free additional share that a company gives to its shareholders, usually when the company is doing well. The main benefit of bonus shares is that they can help you make money.
In this blog post, we will discuss what bonus shares are, their benefits, and their different types.
What is Bonus Share?
Bonus shares are a type of security that is offered to shareholders of a company. They are also known as scrip or stock bonus. These shares are usually given in addition to the regular shares that a person owns. There can be different reasons for issuing bonus shares, such as rewarding shareholders for their loyalty, increasing the value of the company’s stock, or simply raising money. For example, if a company is doing well and its stock price has gone up, the board of directors may decide to issue bonus shares to shareholders.
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How Does it Work?
Bonus shares usually come with some restrictions. For example, the company may only issue them to shareholders who have held the stock for a certain period, or they may be subject to a vesting period. Once the bonus shares are issued, the shareholder will own more shares in the company than they did before. This can help you make money in two ways.
- First, if the company does well and its stock price goes up, you will benefit from owning more shares.
- Second, you can sell your bonus shares for a profit once they become unrestricted.
Suppose ABC Ltd. has issued one bonus share for every two shares held. So, if you own 100 shares of ABC Ltd., you will get 50 bonus shares through your trading app. This means that you will now own 150 shares in the company. If the stock price goes up from INR 50 to INR 60, your investment will be worth INR 15,000 (150 x INR 100).
Benefits of Bonus Shares
There are several benefits of owning bonus shares. One benefit is that it can help you make money. If the company’s stock price goes up after the bonus shares are issued, you will see an increase in your investment. Another benefit is that it can help you diversify your portfolio. By owning different types of securities, you can reduce your risk if one type of security goes down in value.
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Different Types of Bonus Shares
There are two main types of bonus shares: preference and common.
Preference shares give the shareholder the right to receive dividends before common shareholders and to receive their investment back before common shareholders if the company is liquidated. Common shares do not have these rights.
Which type of bonus share is better? It depends on your investment goals. If you are looking for income, preference shares may be a better choice. If you are looking for capital gains, common shares may be a better choice.
Conclusion
Bonus shares can offer many benefits to shareholders. They can help you make money and diversify your portfolio. Before investing in bonus shares, it is important to understand what they are and how they work. This will help you make the best investment decision for your needs.
