Bonus, split, rights and buyback: what they do to your holding

Bonus issue

The company issues free additional shares to existing shareholders, in a stated ratio. A 1:1 bonus gives you one new share for each one you hold.

You own twice as many shares of a company whose per-share price halved. Your stake in the business is identical. No money was created and none reached you.

Why do it? Mostly to bring a high price down to a level more people find approachable, and as a signal of confidence. Neither changes what the business earns.

Stock split

Almost the same outcome, achieved differently. A split reduces the face value of each share and increases the count proportionally. A 1:5 split turns one share of Rs 10 face value into five of Rs 2.

Again the price adjusts, your holding value is unchanged, and your ownership percentage is unchanged.

Rights issue

This one is different, because it involves your money.

The company offers existing shareholders the right to buy new shares, usually at a discount to the market price, in proportion to what they hold. You can take it up, let it lapse, or in many cases sell the right itself on the exchange.

The discount looks like free value and mostly is not. Issuing new shares increases the total share count, so each existing share represents a slightly smaller slice of the business. If you do not participate, your stake is diluted.

The question worth asking is the one the discount distracts from: what is the money for? Funding genuine expansion is a different proposition from repaying debt the company cannot otherwise service. That distinction is in the offer document, and it matters more than the discount.

• Take it up if you would buy more of this business at that price anyway.
• Sell the rights entitlement, where tradeable, if you do not want to add but do not want to simply forfeit the value.
• Let it lapse only deliberately. Doing nothing dilutes you and gives you nothing back.

Buyback

The company repurchases its own shares from shareholders, usually at a premium to the market price. Shares bought back are extinguished, so the count falls and each remaining share represents a slightly larger slice.

You can offer your shares or keep them. If you offer them and the buyback is oversubscribed, only part of your holding is accepted.

The tax treatment changed on 1 April 2026. Buyback proceeds are now taxed as capital gains in the shareholder hands, on the amount above your cost, rather than as dividend income at slab rates. Shares held over 12 months attract 12.5% long term treatment, under 12 months attract 20%.

For most retail shareholders this is an improvement, because previously the full proceeds were taxed as income at slab rates without deducting what you paid. Promoters face an additional buyback tax under the new rules.

The summary worth remembering

Two of these are accounting rearrangements. Two involve real money and a real decision. Treating a bonus or split as an event is how people end up buying something because the price looks smaller.

One practical note: credits from bonus and split shares reach your demat account after the record date, and the process can take several days. See settlement and timelines.