Many investors are convinced that there are a lot of positives to open demat account and start investing in the stock market. Yes, there are indeed. One of them also includes receiving bonus shares of a stock. The thought of earning bonus shares in return for their investment excites a lot of investors. Have you ever wondered, though, why businesses provide these additional shares at no cost? Are they actually free, too? Before going into when and why one gets bonus shares, let’s first dispel widespread misconceptions about bonus shares. It would be good to begin by defining what they are.
Definition Of Bonus Shares
Bonus shares are additional share units that are freely distributed to existing shareholders in proportion to the number of shares they already own. The majority of individuals mistake bonus difficulties for stock splits. This is due to the fact that bonus issues also result in a rise in the total number of business shares, similar to how stock splits do. In contrast, a bonus issue offers more shares to current owners proportionate to the number of shares they now own in the business at no cost, but a stock split lowers the face value of each share.
Eligibility For Getting Bonus Shares
We are aware that current shareholders get bonus shares. However, stock markets see everyday buying and selling of shares of listed corporations. Companies also declare a deadline, known as the record date, along with the bonus issuance announcement in order to prevent this kind of misunderstanding. Bonus shares are only available to shareholders who are listed on the company’s shareholder list as of the record date.
If you want to be eligible for bonus shares, you must acquire the share two days prior to the record date. India utilises a T+2 rolling settlement, which explains this. After acquiring shares, you will only show on the company’s records two days later. The ex-date is the name of this day. The last day to purchase business stock and be eligible for bonus shares is today. Any new investor who joins after the ex-date is not qualified for bonus shares.
When The Bonus Shares Are Credited In Demat Account
The Company’s bookkeepers evaluate their list on the Record Date to determine the Eligible Shareholders. All bonus shares will thereafter receive an International Securities Identification Number (ISIN). Upon completing this process, the business credits the extra shares to the Demat account.
The bonus shares may not be credited to the demat account for up to 15 days after the record date. When the shares are credited to your Demat account, CDSL (Central Depository Services (India) Ltd) will send you a text message to let you know.
You should immediately get in touch with your company’s customer service for an explanation if the bonus shares are still not credited to your demat account even after 15 days. Reputed institutions have all systems along with checks and measures in place for smooth conduct of operations. It would be an additional benefit if they hold a good demat account that works well in sync with the depositories.
Benefits of Bonus Shares
The advantages that stockholders might enjoy are listed below.
Tax efficiency: When shareholders get bonus shares from a firm, there is no tax due. Furthermore, bonus shares are significantly more advantageous than getting dividends because owners may be required to pay up to 30% (on the high side) in taxes if the firm releases dividends. However, owners who get bonus shares are liable for capital gains tax when they sell them, at a rate of 15% for short-term profits and 10% for long-term gains (if long-term gains exceed Rs. 1 lakh).
Additional benefit: Investors who want to retain stocks for a long time might profit from extras like dividends on their shares whenever the organisation announces them. Therefore, the dividend income may improve the stock’s overall performance.
Accessibility and affordability: As previously indicated, this benefits both investors and businesses. In fact, it’s one of the primary motives for which businesses grant bonus shares. By issuing bonus shares, a corporation can raise the total number of outstanding shares, improving market liquidity. Additionally, the share will become more accessible and appealing following the bonus issuance, particularly for novice investors.
Providing additional shares is known as issuing bonus shares. This implies that a company’s accumulated reserves, which it has derived from its profits, are converted into capital through the issuance of bonus shares. Depending on the ratio of issue, bonus shares may increase a company’s liquidity if the price of its shares declines. It takes around 15 days to find the bonus shares in your demat account. If you have a good online trading app like blinkX you can find all details related to brokerage accounts at one place. You will be notified instantly as soon as they are available.