Every few weeks a headline announces that some stock "crashed 50%" when it did nothing of the sort — it issued a bonus. Corporate actions confuse more beginners than almost anything else, and the confusion is entirely avoidable once you separate the ones that move real money from the ones that only change the arithmetic.
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The two families
Does money actually move?
Real money changes hands
- Dividend — cash leaves the company and reaches your bank account.
- Rights issue — you pay money in to buy new shares at a discount.
- Buyback — the company pays you cash for some of your shares.
Only the arithmetic changes
- Bonus issue — more shares, proportionally lower price, identical value.
- Stock split — face value divided, same total holding value.
- Neither creates a single rupee of wealth. The pie is re-cut, not enlarged.
The dates that matter
| Date | What it is | What you must do |
|---|---|---|
| Announcement date | The board declares the action | Nothing. Price often reacts here, on the news. |
| Ex-date | The first day the share trades without the entitlement | Own the share before this date. Buying on or after the ex-date means you do not get the dividend or bonus. |
| Record date | The company checks its register of shareholders | Nothing extra — with T+1 settlement, buying the day before the ex-date is sufficient. |
| Payment date | Cash or shares actually arrive | Nothing. Bonus shares can take a few weeks to appear in your demat account. |
Reading each action properly
- Dividend — sustainable only if covered by free cash flow. A company borrowing to maintain its dividend is buying goodwill with someone else’s money. Check the payout ratio and the cash flow statement together.
- Bonus / split — value-neutral, but the signal can matter. Boards usually do this when they are confident. Treat it as a mild sentiment indicator, never as a reason to buy.
- Rights issue — the company needs money and is asking you for it. Sometimes that funds genuine expansion; sometimes it plugs a hole. Read the stated objects of the issue. If you decline, your stake is diluted.
- Buyback — good when shares are cheap, actively value-destroying when they are expensive. Also check whether it is a tender offer, where you can participate at a fixed premium, or an open-market buyback, where you simply benefit from the extra demand.
Worked example
A 1:1 bonus, step by step
200 shares held at ₹1,800
Before — shares held200
Before — price per share₹1,800
Before — total value₹3,60,000
After — shares heldOne free share for each held400
After — price per shareAdjusted automatically on the ex-date₹900
After — total valueUnchanged₹3,60,000
Your wealth is exactly the same. The financial news reporting this as a "50% crash" is describing a bookkeeping adjustment. Charting platforms adjust historical prices for this automatically, which is why an old chart never shows the drop.
Check yourself
A stock announces a 1:2 bonus (one free share for every two held). You own 300 shares at ₹900. What happens on the ex-date?
Simple bhasha mein
Pizza ke slice
Ek pizza ke 4 slice the, ab usko kaat ke 8 kar diya. Aapke paas 2 the, ab 4 hain — par pizza utna hi hai. Yeh split hai. Bonus bhi lagbhag wahi. Dividend alag hai — woh matlab pizza ke saath thoda alag se cash haath mein. Slice ginne se pet nahi bharta, pizza ka size dekho.
What to remember
- Dividends, rights and buybacks move real money. Bonuses and splits do not.
- Own the share before the ex-date — buying on it gets you nothing.
- A dividend not covered by free cash flow is being funded by borrowing.
- A rights issue is the company asking you for money. Read why it needs it.
- Dividends are taxed at your slab rate in India since 2020.
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Common questions
Short, direct answers to what people ask about this topic.
- difference between bonus issue and stock split
- A bonus issue gives you extra free shares out of the company’s reserves, while a stock split divides each existing share into smaller units by reducing the face value — for example splitting a ₹10 face-value share into five ₹2 shares. In both cases the total value of your holding is unchanged; you simply hold more shares at a lower price each. Neither creates new wealth on its own.
- difference between ex-date and record date
- The record date is the day a company checks its books to decide who is eligible for a corporate action, and the ex-date is the day the share starts trading without that benefit. To qualify for a dividend or bonus you must own the share before the ex-date; buying on or after the ex-date means the seller, not you, receives the benefit.
- do I make money when a company declares a bonus issue
- Not directly — a bonus issue gives you more shares but the price adjusts down proportionally, so the total value of your holding is the same immediately afterwards. It re-cuts the same pie into more slices; any gain comes only from how the market values the company thereafter, not from the bonus itself.
- what is a rights issue
- A rights issue is when a company offers existing shareholders the chance to buy additional new shares, usually at a discount to the market price, in proportion to what they already hold. It raises fresh capital for the company, and unlike a bonus the shares are not free — you choose whether to subscribe, sell the rights entitlement, or let it lapse.
- what is a share buyback
- A buyback is when a company purchases its own shares from shareholders, reducing the number of shares outstanding — which can raise earnings per share and return surplus cash to investors. In India buybacks happen through a tender offer or open-market route, and the tax treatment of buyback proceeds has changed in recent years, so check the current rules before assuming the payout is tax-free.