Bonus Issue in Stocks: Free Shares or Just a Smart Illusion?

"Know what bonus issues really mean, the pros and cons of them, and how traders can use them wisely in intraday moves."

What is a bonus issue?

A bonus issue is when a company gives its current shareholders free extra shares. In the stock market, it's like getting "buy one, get one free."

If a company says it will give you a 1:1 bonus, that means you will get one more share for every share you already own. You will now have 200 shares instead of 100.

Sounds like fun, right? But before you get started, let's talk about what it really means.

Why Businesses Give Extra Shares

Rewarding shareholders: It's a way for companies to thank their investors without giving them money.
Increase liquidity: It's easier to buy and sell when there are more shares on the market.
Psychological effect: New investors may be hesitant if a stock is very expensive (like ₹5,000). The price goes down by the same amount as the bonus, which makes it look more affordable.
Advantages of Bonus Issue

No extra cost: You get more shares without having to pay anything.
Better liquidity: It's easier to buy and sell as the share price goes down.
Long-term wealth: If the company is solid at its core, more shares can increase returns in the future.
Positive sentiment: Most of the time, markets react positively to news about bonuses.
The Catch (or Possible Loss)

Here's the truth that many beginners don't see:

Your investment doesn't really go up in value right away.

For example:

You have 100 shares worth ₹500 each, which is ₹50,000.
The company says there will be a 1:1 bonus.
You now own 200 shares. But the price of the shares goes down to about ₹250.
The total value is 200 times 250, which is 50,000.
So, there won't be any direct profit on the first day. The real benefit will only happen if the company grows in the future.

How traders handle bonus issues during the day

Bonus issues give intraday and short-term traders chances to make quick moves because of how volatile they are. Here's how:

Before the Record Date, a lot of traders try to buy quickly in the hopes of getting the bonus shares.
This demand often makes the price go up for a short time.
On the date of the ex-bonus, the price of the stock goes down.
Depending on the mood of the market, intraday traders look for gap-ups or gap-downs.
Liquidity Advantage: Trading volumes often go up after the bonus because the stock price is lower.
Scalpers and day traders use this extra liquidity to make quick, short trades.
Advice for Day Trading Around Bonus Issues

Don't follow the hype: Prices usually go up before the record date and down right after.
Keep a close eye on volumes: spikes in liquidity can help you make small profits.
Set a strict stop-loss: Moves related to bonuses can change very quickly.
Focus on strong companies: Bonus shares won't help in the long run if the fundamentals are weak.
Last Thoughts

A bonus issue may seem like free money, but it's really just a way to cut up and rearrange the company's value. Management's confidence is a good sign for long-term investors, and it can pay off if the business grows.

Bonus events give intraday traders short bursts of opportunity, but only if you handle them with discipline and risk control.