A bonus issue is when a company gives its existing shareholders extra shares free of cost, in a fixed ratio such as 1:1 (one new share for every one held). Your share count goes up, the price per share adjusts down, and the total value of your holding stays roughly the same.
Where do the free shares come from?
The company doesn't conjure them out of thin air. Over the years, a profitable company builds up reserves, profits it kept instead of paying out. In a bonus issue, it converts a slice of those reserves into share capital and distributes it as new shares. Nothing leaves the company; the same business is simply divided into more pieces of ownership.
Companies typically do this to reward long-standing shareholders and to bring a heavy-looking share price down to a level where more people can afford one share, which can help trading activity.
A worked 1:1 example
Meera holds 100 shares of Kaveri Motors, trading at ₹840. Her holding is worth ₹84,000. Kaveri Motors announces a 1:1 bonus.
| Before bonus | After bonus | |
|---|---|---|
| Shares held | 100 | 200 |
| Market price per share | ₹840 | ~₹420 |
| Total value | ₹84,000 | ~₹84,000 |
On the ex-date, the exchange adjusts the share price for the new share count, with twice the shares in existence, each one is worth about half as much. Meera now owns 200 shares at around ₹420. She is not richer or poorer; her ownership is just sliced finer. Any gain from here comes from the business doing well, not from the bonus itself.
Eligibility follows the usual date rules: Meera must hold the shares before the ex-date, which the company announces along with the ratio. If those dates are new to you, read what is the difference between record date and ex-date.
When do the bonus shares reach my demat account?
Automatically, without any action from you, but not instantly. The new shares are credited to your demat account a few days after the record date, and sometimes in parts. During that gap, the app may show 100 shares at a price that has already halved, which makes your P&L look badly wrong. It corrects itself once all the shares arrive. This is common enough that we have a dedicated article: how do bonus and stock split shares reflect in my account. You cannot sell the bonus shares until they have actually been credited.
Is a bonus the same as a stock split?
They look similar (more shares, lower price, same total value) but a split works by reducing the face value of each share, while a bonus creates new shares out of reserves at the same face value. The comparison table in what is a stock split lays out the differences.
Things to keep in mind
- A bonus issue does not add to your wealth on day one. The price adjustment cancels out the extra shares. Treat "free shares" headlines accordingly.
- You must hold the shares before the ex-date to qualify; buying on the ex-date is too late.
- Expect your average price and P&L in the app to look odd until every bonus share is credited. It self-corrects.
- More shares can mean more liquidity, but the company's underlying business is unchanged by a bonus.
Read next
What is a rights issue? — An action that asks existing shareholders for more money.