Stock split, bonus and rights issue: what changes for you

Three actions that look alike

Companies change their share count in three common ways. A stock split divides each share into smaller ones. A bonus issue gives you extra shares for free out of the company's reserves. A rights issue offers existing shareholders the chance to buy more shares, usually at a discount to the market price. In every case you will see the share count in your demat account change, and the headline price move often scares or excites people for the wrong reason.

The one idea to keep: none of the first two creates value. They re-slice what already exists. A rights issue brings in new money, so it can be good or bad depending on what the company does with it.

One example, three outcomes

Start with 100 shares bought at ₹800, a cost of ₹80,000. Assume the price is still ₹800 before each event. All numbers are illustrations.

The split and the bonus leave your wealth the same. After a rights issue the value is higher because you put in ₹12,000 (20 shares at ₹600), so ₹80,000 plus ₹12,000 equals about ₹92,000. The price falls to about ₹767, the "theoretical ex-rights price", which is the weighted average of 5 old shares at ₹800 and 1 new share at ₹600. Your cost rises too, so there is no gain from subscribing by itself. You gain only if the company's later performance justifies it.

What actually differs

Stock split. The company reduces the face value of the share, for example from ₹10 to ₹5, and the number of shares doubles. Its motive is usually liquidity: a lower price is easier for small investors to buy. It has no effect on earnings per share relative to the price. Do not confuse a low price after a split with being cheap. A low NAV is not a sign of a cheap fund, and a low share price is not a sign of a cheap stock; use ratios such as PE, PB and ROE instead.

Bonus issue. Free shares come from accumulated reserves, so the company's total value is not changed by the issue. It is often read as a sign of confidence, but that is a signal about management, not a fundamental. A bonus can only be issued if the company has the reserves.

Rights issue. The company raises capital from existing holders. It sets a record date, and only holders on that date receive the entitlement. The entitlement trades in the market for a limited window. SEBI revised the rights process to shorten it to about 23 working days from board approval for issues approved after April 2025; the details are on the SEBI website.

Dates that matter

Whichever action, the company announces a record date. You must hold the shares in your demat account by the ex-date to qualify. Under the current T+1 settlement cycle for equities, the ex-date is generally one trading day before the record date, so buying on the ex-date is too late. The exchanges publish corporate actions; see BSE's corporate action pages and confirm the dates with your broker. After a corporate action, your cost per share, holding report and average price will be adjusted by the broker, so check that they match.

Tax treatment

• Split: your total cost stays the same but is divided over more shares, and the holding period continues from the original purchase. In the example, 200 shares at an average cost of ₹400.
• Bonus: no tax on receipt. When you sell the bonus shares, the cost is treated as nil, so the whole sale value is a gain. The holding period starts at the allotment date. If you sell the bonus shares within a year, the gain is short-term.
• Rights: the shares you buy cost what you paid. If you sell the entitlement instead of subscribing, the proceeds are generally a capital gain; seek a professional's view for the exact treatment.

Listed-equity rates as of October 2026 are 20% on short-term gains and 12.5% on long-term gains above ₹1.25 lakh a year; check the current rates on the Income Tax Department site. The capital gains tax calculator runs the numbers, and our blog post on capital gains for stocks and property covers the rest. For the glossary basics, see STCG and LTCG. Dividends are a separate matter; see dividend income tax for stocks and funds.

Traps

1. Chasing the split announcement. A rise on the news is a market reaction, not a guarantee. The stock can fall back.
2. Selling bonus shares for the "free money". The gain is fully taxable because the cost is nil, so the tax drag is higher than on shares you paid for.
3. Ignoring the rights deadline. The window is short. If you neither take up nor sell the entitlement, you lose its value.
4. Reading price as value. A ₹10 stock is not cheaper than a ₹5,000 stock; compare earnings, not prices.
5. Forgetting mutual funds. In an index or equity fund, corporate actions are handled inside the portfolio, and you see them only in the NAV. If you want a simpler route, index funds and ETFs leave these decisions to the index methodology, and the screener can compare schemes.

If you are new to equities, how trading actually costs you explains the brokerage and tax drag on every sale.

This post is for education only and is not investment or tax advice. Corporate action rules, settlement cycles and tax rates change; verify them with your broker, the exchanges and official sources.