Investors often get confused between Bonus Shares and Stock Splits. Both increase the number of shares you hold, but they work differently. Here’s a simple breakdown 👇
🎁 Bonus Shares
- Company gives you extra shares for free as a reward.
- Example: 1:1 Bonus → If you own 100 shares, you get 100 more.
- Face Value: stays the same.
- Equity Capital: increases, since new shares are created.
- Price Impact: Share price usually falls in the same ratio, so your total wealth stays the same.
- EPS Impact: Earnings spread over more shares → EPS comes down.
👉 Think of it like getting an extra pizza free — you now have more slices, but the total value of food is the same.
✂️ Stock Split
- Each share is split into smaller parts to make it more affordable.
- Example: 1:2 Split → 1 share of ₹100 FV becomes 2 shares of ₹50 FV each.
- Face Value: reduces in proportion.
- Equity Capital: stays the same (only denomination changes).
- Price Impact: Share price adjusts down in the same ratio, so wealth is unchanged.
- EPS Impact: Falls because more shares exist, but value remains the same.
👉 Think of it like cutting the same pizza into smaller slices — more pieces, same pizza.
✅ Key Difference in One Line
- Bonus = New shares given free, FV same, equity capital increases.
- Split = Old shares divided into smaller parts, FV reduces, equity capital unchanged.