Both of these leave you holding more shares at a lower price per share, with the same total value. They are, at the moment they happen, financially neutral. The difference between them is accounting, and it is worth knowing.
Bonus issue
The company issues additional free shares to existing shareholders, funded from its accumulated reserves. A 1:1 bonus means one new share for every one held. A 2:1 bonus means two new shares for every one held.
Face value stays the same. Reserves convert into share capital.
You hold 100 shares at ₹800 → total value ₹80,000. Face value ₹10.
The company announces a 1:1 bonus.
After: 200 shares at ₹400 → total value ₹80,000. Face value still ₹10.
You own twice as many shares, each worth half as much. Your stake in the company, and the value of your holding, are identical.
Stock split
The company divides each existing share into several, and the face value is divided in the same proportion. No new capital is created and reserves are untouched.
A split from ₹10 face value to ₹1 face value turns each share into ten.
You hold 50 shares at ₹2,000, face value ₹10 → total ₹1,00,000.
The company announces a split from ₹10 to ₹2 face value — a 1:5 split.
After: 250 shares at ₹400, face value ₹2 → total ₹1,00,000.
The difference in one table
| Bonus issue | Stock split | |
|---|---|---|
| New shares from | Company reserves | Dividing existing shares |
| Face value | Unchanged | Reduced proportionately |
| Share capital | Increases | Unchanged |
| Reserves | Decrease | Unchanged |
| Your total value | Unchanged | Unchanged |
Why companies do it
Affordability and optics. A share at ₹8,000 feels out of reach to small investors. At ₹800 after a split, more people can buy a meaningful quantity. Whether this should matter is debatable; empirically it does affect participation.
Liquidity. More shares outstanding, at a lower price, usually means more trading activity and narrower spreads.
Signalling. Companies tend to issue bonuses when they have healthy reserves and management is confident. It is read as a positive signal — which is exactly why some companies do it.
Bonus specifically also converts reserves into permanent share capital, which some managements prefer for balance-sheet reasons.
What actually happens in your account
On the ex-date, the price adjusts on the exchange automatically. The new shares are credited to your demat account shortly after the record date — usually within a few days, occasionally longer.
Two practical consequences
Your GTT and stop-loss orders need attention. Corporate actions can affect pending GTT orders. Broker handling differs. A broker may disable or cancel GTTs around bonuses, splits, rights issues or other material adjustments. Even where an order remains active, its old trigger price may no longer make sense after the price adjustment — a stop at ₹750 on a stock that has just split to ₹400 is no longer the level you intended. Review pending GTTs around the ex-date and recreate them when necessary.
Your cost basis changes for tax. Your purchase cost is spread across the larger number of shares. For a bonus, the holding period of the bonus shares is reckoned from their own allotment for tax purposes, which can affect whether gains are short or long term. Confirm the current treatment with a tax professional or at incometax.gov.in before selling.
Reverse split (consolidation)
The opposite, and much rarer: several shares combine into one, and face value rises proportionately. Ten ₹1 shares become one ₹10 share, at ten times the price.
Companies do this when the price has fallen very low. Total value is again unchanged, but it is generally not a sign of strength — it is usually tidying up after a long decline.
Key takeaways
- Bonus and split both give you more shares at a proportionately lower price, with no change in total value.
- A bonus comes from reserves and leaves face value unchanged; a split divides shares and reduces face value.
- Companies do it for affordability, liquidity and signalling — not to create value.
- Expect a short window where the price has adjusted but new shares are not yet credited.
- Review pending GTT and stop-loss orders around a bonus or split: brokers handle them differently, and old trigger levels may no longer make sense.
Check your understanding
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