Talking about bonus shares , these are the additional shares that get allotted to the current shareholders. It is without any extra expenses, grounded upon the number of shares that a specific shareholder owns. You can consider them as the accumulated earnings of the company that are not given out in the shape of dividends, but these get converted into free shares.
Allotment of shares
In other words, you can take these shares as the extra shares that the company gives to current shareholders without charging them anything . Being a shareholder, you can easily transact these shares in the secondary market to fulfil liquidity needs. There often come up conditions when a company fails to pay a dividend in cash. It is because of a likely shortage of liquid funds, despite owning a lucrative turnover. These are the times when the company allot bonus type of shares to the present shareholders rather than paying the dividend in cash. Moreover, these bonus type of shares get issued as new or extra shares. As already mentioned, these are free of cost and in proportion to the shares as well as dividends owned by a shareholder.
Also, you should know that companies even often issue or allot bonus type of shares, even if they do not experience any sort of shortage of liquid funds. Yes, you can take it as a strategy that gets employed by certain companies to dodge the highly levied dividend distribution tax that should be paid once declaring bonuses.
How companies credit these bonus type of shares?
The bonus type of shares are going to get credited to your demat account. This is one process that mostly takes ten to fifteen days. Moreover you should know that this type of shares will get credited in your account under a temporary isin and is not going to be permitted for trading purposes right away but it is going to be reflected under the holding report.
Know about the eligibility
All the present day shareholders of the company, at the moment of bonus issue, are actually eligible to get bonus shares. When any company announces a bonus issue, it even announces the date (record date) once the issue needs to be taken place. All the investors who are actually the shareholders of the company on the record date are going to get issued bonus shares. Then, when the bonus type of shares have got issued on the record date, these are called ex-bonus.
Talking about the record date, it is a specific cut-off date that is set by the company. All the present owners of the shares of the company on such a cut-off date called the record date are going to be eligible to get the bonus type of shares. The record date gets set up by the company so that these can hunt the eligible shareholders and distribute bonus type of shares to them.
Conclusion
So, if you want to get started with investing in stocks then get yourself a free demat account first. And make the most of bonus type of shares!