What is a Bonus Issue (BZ) in the Share Market?
A Bonus Issue is a special event that happens in a company. It’s like a gift that a company gives to its existing shareholders. Imagine you have some parts of a pizza, and the company decides to give you some extra slices for free. That’s what a Bonus Issue is like in the share market.
How Does a Bonus Issue Work?
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Reason for Bonus Issue: Companies usually do this when they’re doing really well and want to share their success with their shareholders. It’s a way to say “thank you” to the people who own a part of the company.
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Proportionate Increase: When a company gives out bonus shares, it’s like increasing the number of slices in the pizza without changing the size of the pizza. So, if you had 10 shares before the bonus issue, you might get 1 or 2 extra shares for free.
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Impact on Share Price: Since the total number of shares increases, the price of each share might go down a bit. But don’t worry, the total value of your shares remains the same because you have more shares at a slightly lower price.
Example of a Bonus Issue:
Let’s say you own 100 shares of a company, and they decide to issue a bonus of 1:1. This means for every 1 share you own, you get 1 more for free. After the bonus issue, you’ll have 200 shares, but the value of each share might be half of what it was before.
Why Do Companies Give Bonus Issues?
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Boost Confidence: It shows that the company is confident about its future and wants to reward its shareholders for their trust.
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Liquidity: It increases the number of shares available, which can make the stock more liquid. This means it’s easier to buy or sell the shares.
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Attracting Investors: Bonus issues can make a company’s shares more attractive to new investors because they can get more shares for the same amount of money.
Things to Remember:
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Tax Implications: In some countries, bonus issues might have tax implications. It’s a good idea to check with a financial advisor.
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Long-term Benefits: Bonus issues are usually a good sign that the company is doing well. It’s a positive indicator for long-term investors.
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Check Company News: Keep an eye on the news and announcements from the company. They might give you more information about why they’re doing a bonus issue.
Remember, the share market can be a bit like a rollercoaster ride. It’s important to do your research and, if needed, talk to a financial advisor to make the best decisions for your investments.