Bonus Vs. Dividend ???

50-50 chances...........

Bonus Share : The market price of share get adjusted to ratio in which bonus is alloted after record date..

Dividend is obviously better.

Some of the benefits available to the company by issuing bonus shares are:

(i)                 Conservation of Cash. The issue shares allows the company to declare a dividend without using up the cash that may be used to finance the profitable investment opportunities within the company and thus company can maintain its liquidity position.

(ii)               Under Financial Difficulty and Contractual Restrictions. When a company faces stringent cash difficulty and is not in a position to distribute dividend in cash, or where certain restrictions to pay dividend in cash are put under loan agreement, the only way to satisfy the shareholders or to maintain the confidence of the shareholders is the issue of bonus shares.

(iii)             Remedy for Under-Capitalisation. In the state of under-capitalisation, the rate of divided is very much high. In order to lower down the rate of dividend, the company issued bonus shares instead of paying dividend in cash.

(iv)             Widening the Share Market. If the market value of a company's share is very high, it may not appeal to small investors. By issuing bonus shares, the rate of dividend is lowered down and consequently share price in the market is also brought down to a desired range of activity and thus trading activity would increase in the share market. Now small investors may get an opportunity to invest their funds in low priced shares.

(v)               Economical Issue of Securities. The cost of issue of bonus shares is the minimum because no underwriting commission, brokerage etc. is to be paid on this type of issue. Existing shareholders are allotted bonus shares in proportion to their present holdings.

RegardsSome of the benefits available to the company by issuing bonus shares are:

(i)                 Conservation of Cash. The issue shares allows the company to declare a dividend without using up the cash that may be used to finance the profitable investment opportunities within the company and thus company can maintain its liquidity position.

(ii)               Under Financial Difficulty and Contractual Restrictions. When a company faces stringent cash difficulty and is not in a position to distribute dividend in cash, or where certain restrictions to pay dividend in cash are put under loan agreement, the only way to satisfy the shareholders or to maintain the confidence of the shareholders is the issue of bonus shares.

(iii)             Remedy for Under-Capitalisation. In the state of under-capitalisation, the rate of divided is very much high. In order to lower down the rate of dividend, the company issued bonus shares instead of paying dividend in cash.

(iv)             Widening the Share Market. If the market value of a company's share is very high, it may not appeal to small investors. By issuing bonus shares, the rate of dividend is lowered down and consequently share price in the market is also brought down to a desired range of activity and thus trading activity would increase in the share market. Now small investors may get an opportunity to invest their funds in low priced shares.

(v)               Economical Issue of Securities. The cost of issue of bonus shares is the minimum because no underwriting commission, brokerage etc. is to be paid on this type of issue. Existing shareholders are allotted bonus shares in proportion to their present holdings.

Regards

To a certain extent you are right in saying that issue of bonus shares does not increase the investment or portfolio value of an investor. But bonus issue increase the number of shares without any investment on investor part.

It is a market strategy for the companies to attract more investors. More news like bonus issue is equal to more trading in the company’s stock and consequent increase in market price. So over the value of your investment increase a bit quickly.

Regards

Thanks Sir for clarifying.