Share market newcomers often grapple with terms like dividends, bonus issues, and stock splits. Demystifying them reveals how companies return value to shareholders and why they’re game-changers for long-term wealth building.
Start with dividends: the cash gift from profits. Boards decide payouts based on earnings stability. A 2% yield on a ₹500 stock means ₹10 annual dividend. Prefer equity dividends? They’re tax-efficient in many jurisdictions compared to debt instruments.
Bonus issues sweeten the deal without cash outflow. Imagine holding 100 shares of XYZ at ₹200. A 1:2 bonus gives 50 extra shares, now totaling 150 at around ₹133 each. Total value? Unchanged at ₹20,000. It’s a signal of strong reserves and confidence in future growth.
Stock splits mirror this accessibility play. A 1:10 split turns ₹1000 shares into 10 at ₹100. Trading volume surges, narrowing bid-ask spreads. Historical data shows splits often ignite rallies—think Tesla’s 5-for-1 in 2020, which propelled shares skyward.
Tax savvy: Splits and bonuses don’t trigger immediate capital gains, unlike dividends. But record your original cost basis for future sales. Watch for patterns—frequent bonuses indicate conservative accounting, priming for capital appreciation.
Real-world tip: Scan BSE/NSE announcements daily. Pair with fundamentals like EPS growth. In bull markets, these events amplify returns; in bears, they cushion falls. Ignorance costs money—empower your portfolio today.