Investors often get excited when companies announce bonus shares or a share split, but many don’t fully understand how each works — or how it impacts their holdings.
Both actions increase the number of shares a shareholder owns without requiring any fresh investment. However, their purpose, accounting treatment, and market impact are very different.
This guide explains the difference between share split and bonus issue, their benefits, and what investors — especially those dealing in unlisted shares — should know.
What is a Share Split?
A share split (or stock split) happens when a company divides its existing shares into smaller parts, reducing the face value of each share.
The company’s overall market capitalization doesn’t change, but the number of shares increases while the price per share decreases proportionally.
Example:
Let’s say a company has:
- 1 lakh shares
- Face value ₹10 per share
- Market price ₹1,000 per share
If it declares a 1:5 share split, each existing share will be split into 5 smaller shares.
After the split:
- Total shares = 5 lakh
- Face value = ₹2 per share
- Market price ≈ ₹200 per share
Your total investment value remains the same (₹1,000 × 1 = ₹200 × 5 = ₹1,000).
Purpose of a Share Split:
- To make shares more affordable for small investors
- To increase trading volume and liquidity
- To broaden the investor base
- To make the stock look more attractive in the market
Accounting Effect:
There is no change in the total share capital — only the face value and number of shares change proportionally.
What are Bonus Shares?
Bonus shares are free additional shares issued by a company to its existing shareholders.
They are given out of accumulated profits or reserves, and shareholders receive them in proportion to their current holdings.
This is a way for the company to capitalize its reserves instead of distributing cash dividends.
Example:
If a company announces a 1:1 bonus issue, every shareholder will get 1 extra share for every 1 share held.
So, if you own 100 shares, after the bonus issue you will have 200 shares.
Let’s assume:
- Pre-bonus price = ₹1,000 per share
- After 1:1 bonus, price adjusts to ≈ ₹500 per share
Again, the total investment value remains the same (₹1,000 × 100 = ₹500 × 200).
Purpose of Bonus Shares:
- To reward shareholders for their trust and long-term holding
- To increase paid-up capital using internal reserves
- To signal financial strength and profitability
- To enhance market confidence
Accounting Effect:
Bonus shares increase the company’s paid-up capital and reduce free reserves.
Key Differences Between Bonus Shares and Share Split
| Basis | Bonus Shares | Share Split |
| Meaning | New shares issued free of cost from reserves | Existing shares divided into smaller parts |
| Objective | Reward shareholders & use reserves | Make shares affordable & increase liquidity |
| Source of Issue | Out of accumulated profits or reserves | No reserve used, only change in face value |
| Face Value | Remains same | Reduces proportionally |
| Paid-up Capital | Increases | Remains same |
| Free Reserves | Decrease | No change |
| Market Price Impact | Falls proportionately | Falls proportionately |
| Investor Benefit | Extra shares at no cost | More tradable shares at lower price |
| Example Ratio | 1:1, 2:1, 3:2 etc. | 1:2, 1:5, 1:10 etc. |
Real-World Example
Bonus Issue:
In 2023, Infosys Ltd announced a 1:1 bonus issue, giving shareholders one additional share for every one held. The company did this to reward investors and increase retail participation.
Share Split:
In 2022, Reliance Industries Ltd executed a stock split from ₹10 to ₹2 face value to make its shares more accessible to small investors and boost trading activity.
Impact on Investors
| Impact Area | Bonus Shares | Share Split |
| Ownership % | Unchanged | Unchanged |
| Total Value | Unchanged | Unchanged |
| No. of Shares Held | Increases | Increases |
| EPS (Earnings Per Share) | Decreases | Decreases |
| Market Liquidity | Improves | Improves |
| Dividend per Share | Adjusted downward | Adjusted downward |
Both actions do not increase your total wealth immediately, but they often improve market sentiment and make the company more investor-friendly.
For Investors in Unlisted Shares
In the unlisted market, bonus issues and share splits can significantly affect pre-IPO valuation and share allocation.
- A bonus issue can increase your number of shares before listing, improving liquidity once the company goes public.
- A share split can make unlisted shares easier to trade in private markets due to smaller ticket size per share.
Hence, investors in unlisted shares should monitor corporate announcements carefully — they can reshape the structure and value of your holdings even before the company lists on exchanges.
Conclusion
Both Bonus Shares and Share Split are positive corporate actions reflecting a company’s growth, stability, and investor focus.
While a share split makes shares more affordable, bonus shares reward loyalty and trust.
Neither changes your total investment value immediately, but both can enhance long-term wealth creation by improving liquidity, confidence, and participation in the company’s growth journey.
For investors, both actions are positive signals — they reflect a company’s financial stability and commitment to shareholder value.
If you are an investor in unlisted companies, keep an eye on such corporate actions, as they can significantly influence your shareholding pattern and valuation before listing.