What is the difference between stock split and bonus shares?
Bonus Share: As we know that Bonus is extra some of amount which is paid to a person in addition to the normal wage he gets.
In the same way bonus share is extra share issued by the respective firm to its existing share holder without any additional cost.
It is sometimes also issued as an alternative to the dividend issued by the firms
Bonus shares are preferred by investors as, it gives the liquidity to the investors as Investors receiving the bonus share can sell them in the market in exchange for cash.
Firms low on cash may issue bonus share to its investor, to keep the faith of investors in firm, intact
Issue of bonus share, increases the number of shares, thus making a firm look bigger, and lucrative to investors.
Bonus shares increases the number of share, thus making the price of shares fall and making its affordable to buys share by more number of investors.
And now Talking about the Split Share
As we know Split means dividing anything into many parts. Same theory is applied to firms, firms also splits their shares into some number of shares.
It’s a corporate action, in which a company divides its shares into multiple shares.
Split in shares increases the number of shares, but the total value of the firm remains the same.
The most common split ratios are 2-for-1 or 3-for-1, which means that the stockholder will have two or three shares for every share held earlier, this is called forward share split.
Split share increases liquidity in the share, narrowing bid-ask spread.
It reduces the price per share, making the shares affordable.
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