On October 26, 2024, Reliance announced a 1:Dr. Reddy’s also declared a 1:5 stock split, as well as, 1 bonus issue. If these terms sound confusing don’t worry ! We can break it up into simple terms.
What Is a Stock Split?
A stock split is the term used when a company splits its existing shares into several shares. After which this process will reduce the price per share but will maintain the overall value. For example, in Dr. Reddy’s case, a 1:If you currently own 1 share, you will receive 5 shares after 5 stock splits. The total value, which is invested, is the same but you have more shares. It helps new investors to buy shares and also helps to increase liquidity in the market.
What Is a Bonus Issue?
However, a bonus issue is when a company gives its existing shareholders some extra shares for free. In Reliance’s recent announcement, the 1:If you own a share, you’ll receive a bonus share for free, and 1 bonus issue. Outside of a stock split, your total value is not altered. This increases the number of shares you have, and augments market activity.
Can You Get Your Security Right Away?
Good news! You are able to sell your existing shares any moment. The shares are already in your demat account, so now you simply have to settle them. In fact, these shares can be traded freely of any amount you want to cash in or out.
Why Can’t You Sell Your New Shares Right Away?
Shares from the stock split and bonus issue are not eligible for immediate trading. Once there’s an announcement, you have a waiting period before the shares get processed and credited to your account.
| Corporate Action | Company | Type | Ratio | New Shares Credit Date |
|---|---|---|---|---|
| Bonus Issue | Reliance | Bonus Shares | 1:1 | Typically credited within 1-2 weeks |
| Stock Split | Dr. Reddy’s | Split Shares | 1:5 | Usually credited the next day |
So what happens to the average price?
After credit of the new shares, your average cost per share will be adjusted mechanically. In the case of the stock split the cost per share goes down because you now have more shares, but the overall value of your purchase remains the same.
Should your price be brought down further, your average cost per share also drops in the case of a bonus issue. Because you get paid additional shares for free, the price of each share you pay goes down. Thus, this can be a positive factor for investors because it may result in higher returns depending on the way the share price increases.
What Does This Mean for Your Investors?
After we have some idea of what stock splits and bonus are, let us take a look at the current market scenario. There has been much angst among many investors about Reliance shares lately. Questions are being asked over the Reliance share crash today, and bad news for Reliance Industries. Why Reliance share falling today?
Questions people ask over and over.
Reddy’s also face pressure on its shares. “They (investors) are asking why Dr. Reddy’s share is falling today?” The stock market is sometimes unpredictable. It’s important for investors to always stay informed and educate ourselves before making any decision.
We at moneyphobia want to constantly keep you updated on the latest market trends, and guide you through your investment journey.
For more updates and insights about stock market activities, stay tuned!.
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