Reliance Industries Chairman and Managing Director (MD) Mukesh Ambani has announced that the country’s most valued conglomerate will be issuing bonus shares to its shareholders on a  1:1 basis.

The bonus issue is set to take effect on September 5.

So, what is a bonus issue?

A bonus issue, or bonus share issue, involves a company issuing additional shares to existing shareholders using its accumulated reserves or profits.

For example, if a RIL shareholder has 100 shares of the company, the company will give them 100 additional shares to them in a bonus issue.

Why do companies issue bonus shares?

Companies issue bonus shares primarily to make their stock more accessible to retail investors, particularly when the share price has significantly increased.

By increasing the total number of shares, the company reduces the price per share, making it more appealing to small investors.

Bonus shares also serve as a reward for loyal shareholders and signal the company’s confidence in its future profitability.

How will shareholders benefit from RIL’s latest bonus issue?

Doubling of shares for Investors without added cost

The bonus issue will mean RIL shareholders will double without any additional amount being charged to investors.

Historical Context of Bonus Issues

Reliance has a history of issuing bonus shares to shareholders. Previous bonus issues occurred in 1980, 1983, 1997, 2009, and 2017. This pattern reflects the company’s ongoing practice of distributing additional shares to reward and share its success with investors. This boosts the confidence of investors and increases liquidity of the stock.

Impact on Investment Value

While the number of shares each investor holds will increase, the total value of their investment will remain unchanged. This is because the share price will be adjusted to reflect the new number of shares, so the overall worth of their holdings stays the same.

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