EQUITY SHARES EXPLAINED - BONUS, DIVIDENDS, STOCK SPLITS
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Learn equity share basics including bonus shares, stock splits, dividends (interim vs final), and face value of shares. Introduction: Understanding Equity Ownership
When you invest in the stock market, you buy equity shares of a company.
But equity investing involves several important concepts beginners must understand:
What are bonus shares?
What is a stock split?
What are dividends?
What is face value?
These events directly affect your holdings and returns.
This guide explains all these equity-related concepts clearly.
What Are Equity Shares?
Equity shares represent ownership in a company.
When you buy equity shares:
✔ you become part-owner
✔ you share profits
✔ you gain voting rights
✔ you benefit from growth
Example:
If a company has 1,00,000 shares
You own 100
You own 0.1% of the company.
Face Value of a Share
Face value is the original nominal value of a share set by the company.
It is also called:
par value
nominal value
Example of Face Value
A company may issue shares with:
Face value = ₹10
But market price may be:
₹250
₹1,000
₹2,500
Face value ≠ market price. WHAT IS AN IPO
Why Face Value Matters
Face value is important for:
Dividend calculation
Accounting value
Stock splits
Bonus ratio
Many corporate actions use face value as base.
Face Value vs Market Price
What Is a Dividend?
A dividend is the portion of company profit distributed to shareholders.
If you own shares, you may receive dividend income.
Why Companies Pay Dividends
Companies distribute profits when:
business is profitable
cash surplus exists
growth stable
shareholders rewarded
Mature companies often pay dividends.
How Dividend Is Calculated
Dividends are declared on face value, not market price.
Example:
Face value = ₹10
Dividend = 100%
Dividend amount = ₹10 per share
If you hold 100 shares → ₹1,000.
Types of Dividends
There are two main types:
Interim dividend
Final dividend
Interim Dividend
Interim dividend is paid:
during the financial year
before annual results
Declared by Board of Directors.
Features of Interim Dividend
Paid mid-year
Can be multiple times
Based on partial profits
Faster distribution
Final Dividend
Final dividend is paid:
after financial year ends
after annual results
Approved by shareholders in AGM.
Features of Final Dividend
Paid once a year
Based on full-year profit
More formal approval
Usually larger
Interim vs Final Dividend
Dividend Yield
Dividend yield shows return from dividend.
Formula:
Dividend ÷ Market price × 100
Example:
Dividend = ₹10
Price = ₹200
Yield = 5%
What Are Bonus Shares?
Bonus shares are free additional shares given to existing shareholders.
No payment required.
Company converts reserves into share capital.
Example of Bonus Shares
You hold 100 shares.
Company declares:
1:1 bonus
You receive 100 extra shares.
Total = 200 shares.
Why Companies Issue Bonus Shares
Companies issue bonus when:
profits accumulated
cash retained
share price high
liquidity desired
It rewards shareholders without cash payout.
Does Bonus Increase Wealth?
Total value stays same initially.
Example:
Before bonus:
100 shares × ₹1,000 = ₹1,00,000
After 1:1 bonus:
200 shares × ₹500 = ₹1,00,000
But long-term benefits may arise.
Benefits of Bonus Shares
More shares owned
No tax on receipt
Improved liquidity
Positive sentiment
What Is a Stock Split?
Stock split means dividing shares into smaller units.
Face value reduces.
Number of shares increases.
Example of Stock Split
Before split:
100 shares
Face value ₹10
Price ₹1,000
After 1:5 split:
500 shares
Face value ₹2
Price ≈ ₹200
Total value unchanged.
Why Companies Do Stock Split
Companies split when:
share price too high
retail participation low
liquidity needed
affordability desired
Stock Split vs Bonus Share
Both increase share count — but different.
Key Difference: Bonus vs Split
Impact on Investors
Both actions:
✔ increase shares
✔ reduce price
✔ improve liquidity
✔ attract investors
But economic value same initially.
Corporate Action Dates (Important)
For dividends, bonus, splits:
Key dates exist.
Record Date
Date company checks shareholder list.
You must hold shares before this.
Ex-Date
Date stock trades without benefit.
Buy after ex-date → no benefit.
Example
Record date: 10 July
Ex-date: 9 July
Buy on 9 or later → no dividend.
How These Events Affect Investors
Dividend → cash income
Bonus → more shares
Split → affordable price
All affect portfolio structure.
Example: Combined Corporate Actions
You hold:
100 shares at ₹1,000
Company declares:
1:1 bonus
1:5 split
Final:
100 → bonus → 200
200 → split → 1,000 shares
Price adjusts accordingly.
Are Bonus and Split Good?
Usually positive signals:
Company profitable
Growth confidence
Investor friendly
But not guaranteed profit.
Taxation Basics
Dividend → taxable income
Bonus → no tax on receipt
Split → no tax event
Capital gains apply on sale.
Why Investors Should Understand These
Corporate actions affect:
Holding quantity
Cost price
Returns
Income
Valuation
Ignoring them causes confusion.
Common Beginner Confusions
“Free shares increase wealth” → not instantly
“Dividend on market price” → wrong
“Split creates value” → no
“Bonus same as dividend” → no
Real-World Example
You buy:
50 shares ₹2,000
Company gives:
1:1 bonus
You now hold:
100 shares
Price adjusts near ₹1,000.
Ownership unchanged — but potential improves.
Key Takeaways
Equity shares = ownership
Face value = nominal base
Dividend = profit share
Bonus = free shares
Split = share division
Wealth same initially
Final Thoughts
Equity investing is not just about price movement.
Corporate actions like:
dividends
bonus
splits
shape long-term returns and ownership structure.
Understanding them makes you a smarter investor.
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