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Bonus Share and its impact on stock prices

-By Shiva Srivastava

Bonus share is free or additional shares given to its shareholders, it's a form of stock dividend which is issued out of the company’s accumulated earnings.

These types of allotments are generally in fixed ratios like

1:1- 1 free share allotted to you for every single share you own.

2:1- 2 free shares allotted to you for every single share you own.

So, if you are a shareholder and you own 100 shares and the company decided to give Bonus shares in a 3:1 ratio then you will be issued additional 300 shares, so your total holding will be

(100+300) shares =400 shares.

But there is no big value addition as you can see below -

Bonus Issue ratio

Shares No.

Before Bonus

Share Price

Total value

No of shares


Share Price

After Bonus

Total value

1:1

100

30

3000

200

15

3000

2:1

100

60

6000

300

20

6000

3:1

100

120

12000

400

30

12000

Companies issue bonus shares to encourage participation as when the company share price is high it becomes difficult for retail investors to buy as people usually prefer to buy more no of stocks over single high-priced stock and post bonus issue it becomes affordable. By Issuing bonus shares the number of outstanding shares in the market increases and at the same time value of each share decreases according to the bonus issue ratio but if more demand generates the share price can rise more than the decided post bonus price.