Bonus Issue Explained: How Free Shares Work for Investors

Ever wondered why a company might give you extra shares for free? That’s called a bonus issue. It’s basically a way for a firm to turn its retained earnings into additional stock for existing shareholders. No cash changes hands, but your share count goes up. In plain terms, think of it as a stock dividend that boosts the number of shares you own without costing you a dime.

How Bonus Issues Work

When a board decides to issue a bonus, it first checks the company’s reserves. Those reserves are like a savings bucket that can be turned into share capital. The company then announces a ratio – for example, a 1:2 bonus means you get one extra share for every two you already hold. After the record date, the new shares are credited to your account and the market price adjusts to reflect the larger share base.

The process is pretty quick. The company files a notice with the stock exchange, investors get a public announcement, and the shares appear in your brokerage portal a few days later. You don’t need to do anything – the shares are added automatically.

Pros and Cons for Investors

Bonus issues have a few clear advantages. First, they increase the number of shares you own, which can make the stock look more affordable in price per share. Second, they signal that the company has confidence in its future – it’s using profits to reward shareholders rather than paying cash dividends. Finally, you get a tax‑free benefit in many jurisdictions because you didn’t receive cash.

On the flip side, a bonus issue can dilute earnings per share, meaning each share represents a smaller slice of profit. The market often adjusts the stock price downwards after the issue, so the total value of your holding may stay the same. If the company’s fundamentals are weak, a bonus issue might just be a cosmetic move to attract attention.

In short, a bonus issue is a free‑share giveaway that can boost your portfolio count and sometimes improve liquidity. It’s not a magic boost to wealth, but it can be a useful part of an investor’s strategy, especially if you believe the company will grow after the issue.