What Are Bonus Shares? The Complete Guide to Free Stock Allocations

When a company you invest in announces a "bonus issue," it can feel like waking up to free money in your brokerage account. Suddenly, your share count multiplies without you spending a single penny. But while bonus shares are an exciting event for any retail investor, understanding the mechanics behind them is crucial to knowing how they actually impact your wealth. If you have ever wondered why companies give away free shares, who is eligible to receive them, and what happens to your investment value afterward, this comprehensive guide covers everything you need to know. What Are Bonus Shares? Bonus shares are additional shares given to existing shareholders completely free of cost. Instead of paying out accumulated earnings as cash dividends, a company may choose to convert its free reserves, share premium accounts, or retained earnings into capital and distribute them as newly created shares to its current investors. This process is formally known as the capitalization of reserves. ...