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Bajaj Finserv Stock Split and Bonus: Everything you need to know

Bajaj Finserv has announced a stock split in the ratio of 5:1 and a bonus share issue in the 1:1 ratio. The NBFC informed the Indian exchanges that the company board has fixed 14th September 2022 to finalize eligible shareholders for bonus share and stock split benefit. So, the Bajaj Finserv stock bonus and split ex-date will be 13th September 2022.

This announcement has helped the stock rally over 12% since the last month and cross the ₹17,000 mark. This has raised questions in the minds of investors such as:

  • What is a stock split?
  • What is a stock bonus?
  • What will happen to the existing shareholders during a split/bonus?
  • What is the Record date?
  • What is Ex-date?
  • Who is eligible for a stock split and stock bonus?

This article will help you to answer all these questions.

What is a Stock Split?

A stock split is a corporate action, where a company splits its shares into multiple new ones. Split shares neither add any new value, nor dilute the ownership stake of the shareholders. However, what they do is increase the number of shares of the company.

The main benefit of a stock split is that the shares of a company generally see increased liquidity. Since shares have now become more accessible to retail investors, more people would show increased demand for them, which can increase liquidity on the counter. Therefore, buying and selling shares will be easier after a stock split.

A split increases the number of shares by decreasing the face value, but the total value of the investment remains the same. It usually takes one week to credit the split shares in your Demat account.

Consider this example of Bajaj Finserv:

Let’s say you had a Bajaj Finserv stock with a face value of ₹5 and a price of ₹17,000. If there’s a split in the ratio of 5:1, the face value will become ₹1, and the price will drop to ₹3400(17000/5) on the ex-date of the split. If you purchased 1 share at ₹17,000 with a face value of ₹5 before the split, you would now own 5 shares at a face value of ₹1 at an average price of ₹3400 per share after the split.

The split shares are usually credited to your Demat account within two working days from the ex-date.

What is a Stock Bonus?

Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are the company's accumulated earnings which are not given out in the form of dividends but are converted into free shares.

The basic principle behind bonus shares is that the total number of shares increases with a constant ratio of the number of shares held to the number of shares outstanding. Companies issue bonus shares to encourage retail participation and increase their equity base. When the price per share of a company is high, it becomes difficult for new investors to buy shares of that particular company. An increase in the number of shares reduces the price per share. But the overall capital remains the same even if bonus shares are declared.

Consider this example:

If you’ve bought one share of Bajaj Finserv for ₹17,000 and the company declares a 1:1 bonus, it means that you will now get 1 free share for every 1 share you own.

Now, does that mean you will have 2 shares worth ₹17,000 each? Of course not. The stock price will come down in a similar proportion. A ₹17,000 stock will come down to the Rs. 8500 (17000/2) ranges because now you will have 2 shares on the same investment of Rs. ₹17,000.

Who is eligible for a Stock split/ Stock bonus?

Investors who ‘hold’ the shares of that company before the record date are eligible for the benefits of a stock split/stock bonus.

The record date is the cut-off date on or before which you need to have the shares in your Demat to be eligible for the benefits of splits and bonuses.

Ex-Date is usually one or two business days before the record date. In India the settlement cycle of shares is T+2 days, therefore, to benefit from the corporate action, you’ll have to buy the stock at least 1 day before the ex-date so that the stocks get credited to your Demat account on the record date.

Consider this example:

Bajaj Finserv has fixed 14th September as its record date for the purpose of finalizing eligible shareholders for bonus share and stock split. So, the ex-date for the Bajaj Finserv bonus and split will be 13th September. Therefore, if you buy the shares of Bajaj Finserv on12th September those shares should be credited to your Demat account on 14th September (i.e. the record date) thus making you eligible for the bonus and the split.

What will happen to the shareholders who are eligible for the benefit of this Stock Split/Bonus?

Let’s consider you own 200 shares of Bajaj Finserv. Now, after the 5:1 stock split and 1:1 bonus share issue, your net shareholding of this stock would become 2000 (200 x 5 x 2). 

The price of this stock after this corporate action would come down [aprox. ₹1700(17000/10)] i.e. proportional to the split and the bonus.

Stocks that undergo a split can take up to 1 working day from the record date to be credited to your demat account. During this period the shares are in process of being credited and will be in effect only after they are credited. Therefore, the shares will not be visible in your account during this period, and your holdings will show a drop in profits or an increase in losses until the new shares are credited. Once they have been credited your profit and loss will be re-adjusted automatically.

Similarly, when a bonus is issued, the share price reduces by the factor based on the ratio of the issue, but the investment value of the held stocks doesn’t change & the remaining value is given to you in the form of bonus shares.

If the bonus shares eligible is not in whole numbers, the balance amount will be credited to the registered bank account.

For Bonus shares to be credited to your Demat account it generally takes 15 days from the record date, but this depends on the RTA (Registrar & Share Transfer Agents). You will receive a notification from CDSL as below when your bonus shares get credited to your Demat. You need to note here that the bonus shares first get credited under a temporary ISIN and will not be admitted to trading immediately. It usually takes around 4-5 days for the shares to move from the temporary ISIN to the permanent ISIN after getting the approval for trading. The bonus shares will show up on the trading terminal only after they are approved for trading.

Until the bonus shares are credited to your Demat, your holdings will show an ‘assumed’ drop in P&L. Once the bonus shares are credited to your Demat, your P&L will be restored to its correct value.

Bonus & Splits essentially have the same impact, but the difference in splits is, that the face value of shares reduces.

Let’s Consider an example to understand how the portfolio of someone eligible for stock split and bonus might alter:

Before Stock Split and Stock Bonus

You Buy 10 shares Bajaj Finserv at ₹ 14,000 per share.

Initial investment value = ₹1,40,000

Let’s assume that after some time stock price of Bajaj Finserv appreciates to ₹17,000

Current Market Price= ₹17,000 (approx. per share)

Current Investment value= ₹1,70,000 (17,000*10)

(Portfolio P&L:- Profit≈ 21%)

After Stock Split and Stock Bonus(Split ratio-5:1; Bonus Ratio- 1:1)

Quantity of shares in your Demat account= 100 [10 Shares split into 50(5:1) and then bonus issue of 1:1 means you received 50 bonus shares on your existing 50 shares]

Current Market Price = ₹1,700 ( ₹17,000/10)

On Record date:

Quantity= 10

CMP = ₹1,700

Initial Investment Value= ₹1,40,000

Current Investment Value= ₹17,000 (1700*10)

Portfolio P&L: Loss ≈ 88%

Your portfolio might show an artificial loss as the split and bonus shares haven’t been credited to your Demat account yet

Now, let’s assume it takes 1 working day after the Record date to credit your split shares:

1 Day after Record date-

Quantity= 50

CMP= ₹ 1,700

Initial Investment Value= ₹1,40,000

Current Investment Value= ₹85,000 (1700*50)

Portfolio P&L: Loss ≈ 39%

Your portfolio might show an artificial loss as the bonus shares still haven’t been credited to your Demat account.

Now, let’s assume it takes 15 days after the Record date to credit your Bonus shares:

15 Days after Record date-

Quantity= 100

CMP= ₹ 1,700

Initial Investment Value= ₹1,40,000

Current Investment Value= ₹1,70,000 (1700*100)

Portfolio P&L: Profit ≈ 21% 

The ‘true’ value of your portfolio would be reflected once these shares have been credited to your Demat account.

What happens to stocks bought with Margin funding(MTF)?

You will get all the benefits of bonus and split for stocks bought with MTF. The shares will be credited to your DEMAT account post record date when the company will credit the shares. Please note that for your open position in MTF, required margin will be increased due to bonus or split (corporate action). You must maintain sufficient margin to avoid closure of your position

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