Agar aapne kabhi stock market me ruchi rakhoho, toh aapne investing aur trading ke baare me socha hoga - If you are buying the shares with the intent of holding them for long-term, you are investing in the stock market. If you are only here to make some quick profits, you would be doing that over a shorter period of time - as short as a day - and it will be referred to as trading.
When you choose to invest in the stock market, your main agenda is wealth creation over time. But apart from that, you also get other benefits such as stock split and stock bonus. These can actually have a huge impact on your stock investments.
And yet, we don’t hear about these as often, do we? Let’s find out more about them.
Sabse pehle dekhte hain stock split.
So, when a company decides to go public and gets listed on a stock exchange, the process involves the issue of the shares of the companies to the public. Investors interested in buying the shares of the company make the application at this time. In the books of accounts of the business, the shares issued to the investors are mentioned as outstanding shares.
Now, what is a stock split? It essentially means that the number of outstanding shares are increased by dividing the existing shares originally issued to the present shareholders. This decision is taken by the board of directors of a company.
Now you might be wondering: how do stock splits actually work in reality? What is the point? most commonly companies 2 for 1 ya 3 for 1 ke stock splits authorise kartin hain. For instance, if a 2 for 1 split has been approved, then each single share isdivided into two shares.
So the shareholder holding 8 shares will now hold 16 shares.
The result of stock split for the company is that the number of outstanding shares has increased. if the number of outstanding shares of a company before a stock split was 5 crores, the number would increase to 10 crores after the split.
The most interesting part about stock splits, however, is that the face value of the stock gets affected by the split. How does that happen?
Lets take the 2 for 1 scheme. Now the number of shares doubles in the scheme, so the face value is halved. In simple words, if a single stock valued at ₹ 100 is divided as per a 2-for-1 split, there would be 2 shares valued at ₹ 50 each after the split.
Lekin, company ki market capitalisation abhi bhi utni hi hai jitni stock split se pehle thi - only the face value gets adjusted according to the increase in the number of outstanding shares.
Toh sawaal ye uthta hai ke companies stock split kyu karti haun?
Generally, jab company ka share price bahut zyada badh jaata hai, toh company ke stocks ko khareed pana mushkil ho jaata hai. The stocks become unaffordable. Smll investors would no longer be in a position to buy shares. This decrease in affordability factor of stocks has a direct impact on the liquidity. Stock ki liquidity kam ho jaati hai. So to rectify the situation, publicly traded companies resort to stock splits in order to make their shares more affordable to small investors and to boost liquidity.
Kyuki stock splits se market capitalisation par koi asar nahi padta, company ke liye advantage hi rehti hai! In fact, stock split ke baad usually shares ka price badh jaata hai kyuki liquidity badhne se demand me badhautri hoti hai. This benefits existing shareholders, making the scheme a win-win situation for both investors and companies.
That was all about stock splits. Another concept we mentioned at the beginning of this podcast was stock bonus. Stock bonus ke aapne kayi naamo se suna hoga: scrip issue or capitalisation issue. Iske under ek publicly listed company existing shareholders ko additional shares issue karti hai. Ye decision bhi board of directors ke approval se liya jaata hai. In a stock bonus issue, the issuing company gives additional shares to its shareholders for no additional cost.
But this doesn’t happen randomly. Company bonus shares issue karte samay ratio ko badhe dhyaan se consider karti hai. So for example, agar bonus issue 1:2 ki ratio me hoga, that means that the company issues two additional shares for every single share held by the shareholders. This essentially triples the number of outstanding shares of the company. Iss case me shares ki face value same rehti hai. Stock bonus issue karne ka main reason hota hai : increasing the appeal to the prospective investors. When they see that the company is doing SO well, that is is rewarding existing shareholders with bonus shareholding, then the perceived value f the company will shoot up.
In some cases, companies choose to issue bonus shares to compensate for the lack of dividend payouts in case of insufficient funds.
There is another benefit, very similar to the benefit of stock splits: increased liquidity. Because the number of outstanding shares has increased, this boosts the liquidity of the stock.
In both cases: stock split and stock bonus, the number of shares held increases. They are great corporate gifts to you that multiply your wealth considerably by simply staying invested for a long period of time.