You will get to know
about a company that has actually doubled or tripled or whatever you can say
about the investments of shareholder's multifold time's investment of shareholders
as increase the value. The very important point as to how or what could be the
different parameters for you to understand which company has a probability of
giving bonuses. The taxation perspective of bonuses right.
1. Definition of Bonus share :
Bonus shares basically
are free shares given by the company to its shareholders. A bonus can be
generally given in a ratio. Assume that the company says we are issuing a bonus
in the ratio of 1:1. What does it mean? They are giving 1 share free for every
1 share held. Let's take one more example to let's say the company declares a
bonus of 3:1. It means three free shares you will receive for every one share
held. So that's a fantastic thing. So that is the basic concept of bonus shares
where the company gives free shares to the investors.
2. Record date :
When I buy the shares
if I were to get the benefit of bonuses this is a very important concept which
is known as a record date. The record date is a date that is declared by the
company you should have shares of that specific company in your Demat account
on this record date. If you have shares on this record it then and only then
are you entitled to get bonuses.
3. Understanding of Bonus share :
There any big value
addition to your investment value if you get bonuses? The answer is no. Assume
that one share has the current market price of 1000 rupees and the bonus share
is given in the ratio of 1:1 then what will be the new price will be nothing
but 500. The reason is that when a company gives a bonus share then your value
or the price of the share exactly goes down to half. Let's assume we
had one share of 1000 now you got one more free share, so now your share
numbers are doubled. So what happened here? The value of your investment
was thousand in the second case if you get a bonus also your value remains
the same. Then why bonus shares? Is it just sentiments that I have
got bonus shares? No, let's assume that this 1000 rupees share was
comparatively high-priced stock, so that is why there are many people,
many investors who are not wanting to buy that share. People generally
want to buy low-value stocks to be very careful about this just because it is
low in price does not mean it's profitable. stock, you have to check all the
parameters related to that but the moment most bonus if the share price goes
down it becomes affordable. What if it becomes affordable to many investors and
that is why bonus shares have given and more people would now want to buy
shares of that company. Let's say the company offers a big bonus of 4 shares
for every 1 share held. Now what will happen, let's say the price originally
was 500 now the new price will be approximately 100. We can imagine such a
thing that let's say M&M which was once available at 500 if now it becomes
available at hundred rupees. You also want to buy that in large quantities, yes
and that's what exactly happens more and more people will buy more and more
demand will be generated. The more and more demand is generated then demand and
supply forces the price will ideally rise. So let's understand theoretically a
500 rupees share 1:1 bonus should have gone down to only 250 rupees but
generally what happens if the demand increases then the share price starts
maybe at 300 or 310 could even rise to 350. Also, you never know that's the
biggest advantage of a bonus.
Is there any company
that has given a huge bonus till date? yes and the name of that company is
Infosys. Now let us understand how bonus impacts the value in your portfolio.
If you know about this Infosys had come up with an IPO that is an initial
public offer with 95 rupees per share. This was listed in 1993. So assume that
your father your mother could have bought 100 shares only at 95, so the initial
investment amount was rupees 9500. Now, what happens with this 9500 initial
investment? 8 times a bonus has been declared by Infosys. Now let us understand
in what ratio they have given bonuses. So I'll just tell you how it impacts
your total number of shares in your portfolio. On the first bonus was 1:1. So
presuming that you are only 100 shares in your account that will now become
51200. If you still held that shares the current market price of Infosys is
614. So the total amount you will get 3,14,36,800 rupees.
4. How to find which company give a bonus in the future?
The next point as to
how we can find out certain parameters based on which we can choose whether
there are there is a probability at least that the company can issue bonus
shares or not. The very first one would be whether the company is in
good profits or not if companies into continuous profits it's a positive
sign with increasing profits. If you have seen any balance sheet of
a company discloses this reserves portion under the liability side of the
balance sheet. So reserves say a company can have two three options.
- They can give dividend.
- They might use it for
expansion, so in this case, if they are going to use it for expansion
company does not pay this money out to the shareholders these profits.
They'll keep it with themselves and the thought process behind this is
that company might say that if we give this money to you at what rate can
you grow this money 5% 7% ,8% but company says we have the capacity to
grow this money at the rate of maybe 15% ,20%. So instead of paying it out
as a different keep that money with us and we will expand the company, we
expand the operations and in turn, you will be benefited from the increase
in the share price. Third process big companies like Google
Microsoft they have barely given any dividend or they have barely
given any bonuses, so their thought processes of expansion. So
you need to know whether the companies thought process allows it
to give dividends or not allows it to give a bonus or not.
- They can issue bonus share.
- There's one more probability
company can also come up with a buyback this is what many companies are
actually doing in the recent past.
These could be the
various parameters based on which you can check if the profits are good enough
there are chances that the company might give bonuses. Reserves are good there
is a probability that the company might give a bonus. The third process the how
do you check what is the company's short process it's very simple, check the
history. History is nothing but whether the company has really given bonuses in
the past or not as if their company is never given a bonus till date then the
probability their company might give back-to-back bonuses is very less. So
these could be the different parameters you can choose based on which you can
try to select stocks that have a higher probability of giving dividends.
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