When Bonus Shares Are Credited in Demat Account?

Bonus shares are extra shares that a firm gives to its shareholders at no cost, sometimes referred to as scrip dividends or stock dividends. Rather than issuing cash dividends, the corporation issues these shares using its reserves and profits. However, receiving bonus shares as a shareholder can be a thrilling opportunity, particularly if the business is doing well. In the meantime, many investors are unaware of the exact day their demat accounts will get these extra shares. So, let’s discuss bonus share credit in demat account through this post.

Bonus shares are extra shares that a firm gives to its shareholders at no cost, sometimes referred to as scrip dividends or stock dividends. Rather than issuing cash dividends, the corporation issues these shares using its reserves and profits. However, receiving bonus shares as a shareholder can be a thrilling opportunity, particularly if the business is doing well. In the meantime, many investors are unaware of the exact day their demat accounts will get these extra shares. So, let’s discuss bonus share credit in demat account through this post.

What is the Meaning of the Bonus Share Issue?

Bonus shares refer to additional shares granted by a corporation to current shareholders as a “bonus.” These extra shares are allocated when the corporation cannot pay dividends to shareholders, even if it is profitable. This typically occurs when the business has a substantial free reserve and significant earnings.

Furthermore, these reserves or profits are primarily intended for dividend payments. Bonus shares are allocated based on the shareholder’s proportionate participation in the company.

Eligibility for Allotment of Bonus Shares

Businesses choose who is qualified to get bonus shares through the record date. Trading continues after a bonus share issue is announced, and new shareholders are added and removed on a minute-by-minute basis.

But given the constantly fluctuating number of shareholders, how do businesses ascertain the identification of present shareholders? Businesses that want to give out bonus shares set a record date to determine how many of their current shareholders are there.

In order to identify stockholders, the company’s bookkeepers confirm the records on the record date. A firm also discloses an ex-date when it declares a bonus share issue. The deadline for purchasing the company’s stock to qualify for a bonus share issue is known as the ex-date. Moreover, bonus share credit in the demat account is not available to individuals joining the business after the ex-date. India uses a T+2 rolling settlement, meaning that the ex-date is two days before the record date.

Benefits of Bonus Shares to Shareholders

1. Improved Investment Opportunities
   Listed shares can be expensive, which makes it difficult for investors to increase their holdings. On the other hand, bonus shares provide an alternative by boosting a person’s ownership position in the business without adding to expenses.
2. Long-Term Growth Potential
   A company’s share price usually increases as it grows. As a result, over time, the bonus shares increase the value of an investment. These extra shares have significant profit potential if they are sold on the secondary market for a higher price.
3. Increased Company Liquidity
   By lowering share prices, the issuance of bonus shares increases the company’s liquidity. This happens because the share price is split across more shares. As a result, the reduced price stimulates more individual investors to purchase stock in the company.

Which Organizations Give Bonus Share Credit in Demat Accounts?

Any company listed on a stock exchange can award bonus share credit in a Demat account to its devoted shareholders. A record-breaking 70 corporations have declared bonus shares to their owners in 2022 alone. Moreover, companies reward their current shareholders with bonus share handouts and ensure that these shares are only granted to those who remain with the business for an extended period.

As long as they have kept their initial firm shares for a specific amount of time, new tax regulations guarantee that investors profit from the distribution of bonus shares. Reputed companies such as Wipro, ICICI Bank, GAIL, BPCL, L & T, and others have granted numerous bonus share credits in Demat account to devoted and long-term owners.

The Bottom Line

Obtaining bonus share credit in a demat account can be a satisfying experience for shareholders, but it’s crucial to comprehend the procedure and any hazards involved. Investors should be informed about business announcements and record dates to ensure they receive bonus shares on time. Additionally, investors can make well-informed judgments on issuing bonus shares from their portfolio by speaking with a financial counsellor.

Frequently Asked Questions

Who decides when and how many bonus shares will be issued?

The company’s board of directors and shareholders must approve a resolution to issue bonus shares.

What are bonus shares?

Bonus shares are extra shares that are issued to present investors in proportion to their current position at no cost to them. They are distributed in different ratios:1:1,2:2,3:1, etc. If you are qualified on the day of the bonus announcement, they will be added to your Demat account.

What is an Ex-date?

The ex-date is the deadline for purchasing shares of a corporation so that they can be included in the shareholder list on the record date. India’s stock markets use the T+2 settlement system.

Therefore, one must purchase shares two days before the record date to be eligible for a bonus. Individuals who join the company after the ex-date will not be eligible for the bonus since they will not be listed on the database of shareholders on the record date.

What is the impact of bonus share issuance on a company's earnings per share (EPS)?

Bonus shares can potentially decrease a company’s EPS if its profits do not grow proportionately with the increase in shares.