Effect of Bonus Issue on Share Price

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A. Prithvi Surya (Querist)
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07 June 2011 Dear Experts,
When a listed company issues Bonus shares say in the ratio of 1:1 and suppose the Price of the Share in the stock market before Bonus Issue is500/-, does the share value in the stock market after the bonus issue become250/-??

Kindly explain the logic behind your answer....

Thanking you in advance

Prithvi

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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07 June 2011 Cum bonus price indicates the value of one shre with bonus entitlement on it. While ex Bonus price is without the bonus entitlement on it. As such Ex-bonus price is less appx in the ratio of bonus declared.

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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A. Prithvi Surya

A. Prithvi Surya (Querist)
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07 June 2011 Sir then if the Ex-Bonus Price is approx to the bonus issue ratio, the advantage of getting Bonus shares is lost right????

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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07 June 2011 Benefit of Bonus goes to those who are invested for a number of days. It is not that a person invests for one day when it is cum-bonus and sells the other day when it is ex-bonus. If it would have been then every body would have invested in this fashion and earned a lot.

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