Bonus shares are the reward given by companies to their shareholders. Unlike dividends, which are paid in cash, bonus shares are distributed in the form of additional shares, free of charge, to existing shareholders.
These shares are a way to distribute the company’s profit to investors. Bonus shares increase the value of investor investments. To manage these bonus shares efficiently, by default demat accounts are used. A Demat account holds stocks and other securities electronically and keep them safe and secure.
In this article, let’s explore how bonus shares are credited to demat accounts and why they’re important for investors. We will also answer when will bonus shares be credited to demat account.
Let’s start with the basics.
What are Bonus Shares?
Bonus shares refer to the free additional shares offered by the company to the current shareholders based on their current stake in the company.
Companies issue bonus shares when they earn huge profit or have large free reserves which cannot be appropriate for any uses. They are also referred to as:
- Bonus issue
- Scrip issue
- Capitalization issue
Bonus shares are generally announced in a certain ratio. For example, if the company declares a 1:2 bonus issue, the shareholders will receive two extra shares for each one they hold.
Therefore, the total number of shares increases with a constant ratio of the number of shares held to the number of shares outstanding. Here are most bonus giving shares in India that you might want to have a look at!
Process of Crediting Bonus Shares in a Demat Account
The process of crediting bonus shares in a Demat account involves the following steps:
1. Eligibility
There are several steps to getting bonus shares in a Demat account. First, the holder must ascertain their qualification. You are only eligible for a bonus issue if you are the shareholder on the record date. The record date is the day determined by the bonus issuing company.
Alternatively, if you do not have any stocks in the company issuing the bonus shares, you can qualify for the bonus issue by purchasing shares prior to the ex-bonus date.
The ex-bonus date refers to the date when the stock is traded without the bonus entitlement. It is generally a few days before the record date.
2. Record Date
The second step in receiving bonus shares is the record date. This is a specific date set by the company, and it’s crucial because only those who are shareholders on this date are eligible for the bonus shares.
On the record date, the company’s bookkeepers review their list of shareholders to identify who will receive the bonus shares. It’s essentially a snapshot of the company’s shareholders at a particular moment in time.
If you’re a shareholder on the record date, you’re on the list for bonus shares. If not, you won’t receive the bonus issue.
3. Allotment of ISIN
The third step in the process of receiving bonus shares involves the allotment of an International Securities Identification Number (ISIN) to the bonus shares.
After the company has identified the eligible shareholders on the record date, it assigns an ISIN to the bonus shares. An ISIN is a unique code that distinctly identifies a specific securities issue. The use of ISIN allows for uniform identification of securities across different markets and exchanges.
This step is crucial as it ensures that the bonus shares are correctly identified and allocated to the eligible shareholders’ Demat accounts.
4. Crediting of Shares
After the ISIN allotment, the company credits the bonus shares to the eligible shareholders’ Demat accounts.
So, the question often asked is: when will bonus shares be credited to demat account? This process can take up to 15 days from the record date. It’s important to note that the bonus shares are additional to the shares you already own. They are issued free of cost, increasing the total number of shares you hold.
If the bonus shares are not credited even after 15 days, it’s recommended to contact the company’s customer care for clarification.
5. Notification
The fifth and final step in receiving bonus shares is the notification. Once the bonus shares have been credited to your Demat account, you will receive a notification. This is typically a text message from the Central Depository Services Limited (CDSL).
The notification confirms that the bonus shares have been successfully credited to your account. It serves as an official confirmation of the successful completion of the bonus issue process. It’s important to keep this notification for your records.
If you don’t receive this notification, it’s advisable to contact your company’s customer care for clarification.
Conclusion
Understanding how bonus shares are credited in demat accounts is essential for investors seeking to deepen their knowledge. Bonus shares not only add value to investors’ portfolios but also reflect positively on the company’s performance. However, you need to fulfil the requirements to be eligible to receive bonus shares.
📌 You can also read:
- Where Should You Open a Demat Account?
- Can a Demat Account be Closed Automatically
- Can you Open Multiple Demat Accounts in India?
Happy Investing 💰
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.
