Understanding Bonus Shares: Are You Eligible After a Sale?

What Are Bonus Shares?

Bonus shares are additional shares given to shareholders by a company as a reward for their investment. They are often issued at no cost to the shareholder and are typically granted in proportion to the number of existing shares held. For instance, if a company announces a 1:1 bonus share ratio, then every existing share becomes two shares. However, the total market capitalization of the company remains the same. The share price adjusts accordingly to ensure that the total value of the shareholder's holdings does not increase.

Key Terms and Dates

Ex-Dividend Date (Ex-Bonus Date):
The date on or after which if you buy shares, you will not be entitled to the upcoming bonus shares. On this date, the share price is adjusted to account for the bonus.

Record Date:
The date by which the company checks who the shareholders are in order to grant the bonus shares. If you hold the shares on or before the Record Date, you will be eligible for the bonus shares, even if you sell them before the ex-bonus date.

The Process Explained

Let's consider an example to understand these terms better.

Say a company named ABC has announced bonus shares in a 1:1 ratio, with the Record Date being 29th September 2016, and the Ex-Bonus Date being 28th September 2016.

1. What Are Bonus Shares?

If Mr. Kapoor holds 2000 shares of ABC before the bonus share announcement, after the bonus shares are credited to his Demat account, he will have 4000 shares of the company. On the ex-bonus date, the share price of ABC will be halved to maintain the company's market capitalization. Initially, Mr. Kapoor's shares are worth 180/- each, and after the bonus, his shares will be worth 90/- each.

There is no change in his monetary value, as the share price adjustment follows the bonus issuance.

2. What Is the Ex-Bonus Date?

The ex-bonus date, 28th September 2016, is the critical date. If someone buys shares on this date or after, they will not be eligible for the bonus shares. On this date, the share price of ABC will also be adjusted to 90/-.

3. What Is the Record Date?

The record date, 29th September 2016, is the final date by which the company captures shareholders' names to grant the bonus shares. If the shares are held until the end of trading on this date, the shareholder will be eligible for the bonus, even if they sell before the ex-bonus date.

Are You Still Eligible to Receive Bonus Shares If You Sell Them?

Remember, the key is to own the shares on the record date. If you sell your shares before the record date, you will not be eligible for the bonus shares. However, you will receive the bonus shares if you hold the shares until the record date, and they have settled in your Demat account.

If the company announces the bonus on, for example, 1 April 2021, and the record date is 20 April 2021, you must have your shares on 20 April 2021 to be eligible for the bonus shares. This timeframe shows that the record date is typically 15 to 20 days after the declaration date.

Important Considerations and FAQs

When Should I Look for the Record Date?

Look for the record date, not the declaration date. If you sell your shares after the record date, you will not be entitled to the bonus shares due to the 15 to 20 days delay in settling the transaction.

Will I Still Receive the Bonus Shares If I Sell Them?

Yes, you will still receive the bonus shares if you hold them until the record date and they have settled. The two-day settlement period (T2) means that your shares will be credited to your Demat account 2 trading days after the date of purchase or sale.

What Are the Key Dates to REMEMBER?

Ex-Bonus Date: Only those who buy shares after this date will not be eligible for the bonus shares, and the share price will be adjusted. Record Date: The final date by which the company checks shareholder eligibility for bonus shares. If shares are held until this date, the shareholder is eligible for bonus shares. T2 Day Settlement: This typically takes 2 trading days, which means your holdings will be updated in your Demat account on or around the record date.

Conclusion

Understanding the intricacies of bonus shares and the key dates is crucial for stakeholders. The Record Date is the decisive factor in determining eligibility for bonus shares. By holding the shares until the record date, you can still receive the bonus shares even if you sell them before the ex-bonus date.

For further clarification, make sure to check the specific dates provided by the company and ensure your shares are held until the record date. If you have more questions, feel free to reach out to your financial advisor or the company's investor relations department.