What is a bonus share in the stock market?
Bonus shares are shares given to the existing shareholders for free. For example, if a company declares bonus shares at a ratio of 1:3, that means shareholders will get one bonus share for every 3 shares held by them already. In other words, a person holding 300 shares will receive 100 bonus shares for free and thus have 400 shares in total. In the following sections, we will be looking at two of the important IT stocks bonus shares trajectories – the Wipro bonus shares history and the Infosys bonus shares history.
Wipro bonus shares history
Wipro bonus shares were first given out in 1971 on a 1:3 basis. Thereafter, between 1981 and 1996, Wipro gave out bonus shares 6 times on a 1:1 basis every time. Again, in 1997 and 2004, bonus shares were issued at the rate of 2:1, followed by 2005 when the same was given out at 1:1. Finally in 2019, bonus shares were once again issued, this time on a 1:3 basis.
Overall, if you had 3 shares in 1981 then today you would have 20,480 shares of Wipro, which would, of course, churn out a healthy amount for any investor.
Infosys bonus shares history
On the other hand, Infosys started by giving out bonus shares thrice between 1994 and 2004 on a 1:1 basis each time, followed by once at a 3:1 rate.
Then again bonus shares were issued 4 times until 2018 at the rate of 1:1.
This means that if you had a single share of Infosys in 1994 then today you would have 512 shares of the same.
Benefits of bonus share
Bonus shares are an extremely useful tool for companies trying to expand under severe pressure. It also saves tax money for investors. The following points show how bonus shares should be considered by a company:
- Issuing bonus shares is an activity done on a non-cash basis i.e. the company does not have to use any of its cash reserves in order to create this value. Therefore, it allows the company to retain its liquidity.
- Whenever bonus shares are issued, the total number of shares increases but the market value of the company remains the same – therefore the price of each share decreases, allowing smaller investors to also buy the shares of the company.
- It is also useful in saving taxes for investors. Had the company paid dividends instead of bonus shares, the shareholders would have had to pay taxes. Now if the investor comes under the tax bracket of, say, 30% then for every Rs 100 gain, the investor would have to pay Rs 30 tax. But if the investor gets a share worth Rs 100 and the investor sells it in the market then the applicable tax rate will be only 15% (if short-term capital gains tax) or 10% (if long-term capital gains tax).
Thus we can see that dividends and capital appreciation are not the only things to look at while judging a stock. Now that you have read up about Wipro bonus shares history and Infosys bonus shares history, try exploring the different stocks available on the market and see which ones are the most profitable for you, with or without dividends. You can open a demat account with us and start exploring such shares through the Angel App.
Disclaimer: This blog has been written for educational purposes only. The securities quoted in the article are merely examples and not recommendations.