1. Bonus Shares Bonus shares are additional shares issued by a company to its existing shareholders without any extra cost. They are distributed in a specific ratio, such as 1:1 or 2:1, meaning for every share owned, a shareholder receives additional shares. Why Do Companies Issue Bonus Shares? Reward Shareholders: A company may issue bonus shares to reward its shareholders when it has accumulated surplus profits but wants to retain cash for future investments or operations. Increase Liquidity: By increasing the number of shares, bonus shares help improve the liquidity of the stock in the market, making it easier for investors to buy and sell shares. Confidence Signal: Issuing bonus shares can signal that the company is confident about its future prospects and profitability. Example: If you own 100 shares of a company and it announces a 1:1 bonus share, you will receive an additional 100 shares, making your total holding 200 shares. However, the stock price adjusts accordingly, so the overall value remains unchanged in the short term. 2. Stock Split A stock split occurs when a company divides its existing shares into multiple shares to make the stock more affordable without affecting the company's overall value. Common split ratios include 2-for-1, 3-for-1, or even higher. Why Do Companies Split Their Stock? Make Shares Affordable: As a company's share price increases, it may become expensive for small investors to buy. A stock split lowers the price per share, making the stock more accessible to a wider range of investors. Increase Liquidity: A split increases the number of shares available in the market, improving liquidity, which can lead to more trading activity. Psychological Impact: Lower share prices can attract new investors, even though the split doesn’t change the company’s actual value. This psychological effect can drive up demand. Example: If a stock is trading at ₹1,000 and the company announces a 2-for-1 split, the share price will adjust to ₹500 after the split, but shareholders will now own twice the number of shares. 3. Dividend A dividend is a portion of a company’s earnings that is paid to shareholders, usually in cash or additional shares, as a reward for holding the stock. Dividends are typically paid out at regular intervals, such as quarterly or annually. Why Do Companies Pay Dividends? Share Profits with Shareholders: Dividends allow companies to share their profits directly with shareholders, providing them with a regular income. Attract Investors: Some investors, especially those seeking stable income, prefer companies that pay regular dividends. Dividend-paying stocks can attract long-term investors and increase the stock’s demand. Signal of Financial Health: Consistent dividend payments can indicate that a company is financially stable and confident in its profitability, which may boost investor confidence. Types of Dividends: Cash Dividend: A direct cash payment to shareholders, typically expressed as an amount per share (e.g., ₹10 per share). Stock Dividend: Instead of cash, shareholders receive additional shares in the company. Example: If you own 100 shares of a company that declares a ₹5 cash dividend, you would receive ₹500 in total (₹5 x 100 shares).