Stock Split
How does a stock split differ from a bonus issue?
Stock Split: Involves splitting the existing shares into smaller units, reducing the face value. Bonus Issue: Free additional shares are issued to existing shareholders from the company’s reserves, without affecting the face value.
What is the record date in a stock split?
The record date is the cut-off date set by the company to determine which shareholders are eligible for the stock split. Shareholders owning the stock on or before this date will benefit from the split.
Is there a tax implication of a stock split?
No, a stock split does not create a taxable event, as the value of your investment remains the same. Taxes may apply only when you sell the shares.
Can a stock split indicate anything about the company’s performance?
Not necessarily. A stock split is more about improving share affordability and liquidity than indicating company performance. However, a company announcing a split might suggest confidence in its future growth.
What happens to my shareholding after a stock split?
Your shareholding increases in proportion to the split ratio. For instance, in a 1:5 stock split, every 1 share you own becomes 5 shares. However, the total value of your investment remains unchanged.
What is the difference between face value and market value?
Face value: The nominal or par value of a share set by the company, often used during corporate actions like stock splits. Market value: The current trading price of a share in the stock market, determined by supply and demand.
Does a stock split affect the market value of shares?
No, the market value of the shares adjusts proportionately after the split. For example, if the pre-split price of a share was ₹500 and the split ratio is 1:5, the post-split price of each share would be ₹100.
Why do companies announce stock splits?
Companies typically announce stock splits to: Make their shares more affordable to small retail investors. Increase liquidity in the market. Attract more buyers and sellers to trade the stock, helping to discover its true value.
What is a stock split?
A stock split is a corporate action in which a company divides its existing shares into multiple shares, increasing the number of shares outstanding while reducing the face value proportionately.