Bonus means extra. In stock market, Bonus Share is extra dividend that a company pays to its shareholders when it gets huge profits. When a company earns huge profits, the directors sometimes decide to pay bonus to the shareholders of the company. It may be in form of cash or stocks – when there is accumulated cash to the people, the directors pay cash dividend but in case it isn’t in a position to pay cash to the shareholders, free shares are issued which are termed as Bonus Shares. With the announcement of Bonus Shares, Record Date is also announced which is the date when shareholders get their Bonus Shares.
Bonus shares are issued using the reserves of the company – all the profit it has made over the years. When this reserve increases, they distribute it among the shareholders which doesn’t effect the company and the people don’t have to pay anything either. These shares are issued in a proportion to the shares you are current holding of a company. For instance, 2:1 ratio means that you will get two more shares for every one share that you have in the company. So, if you hold 50 shares, you will get 100 shares free which makes your total 150 with even paying any extra money.
Some people wonder whether or not Bonus Shares are good for them. The fact is that if a company is issuing Bonus Shares, it is definitely booming and is a good sign. Stocks of the company get liquid when they issue Bonus Shares so you can easily buy or sell them.Google+