NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Stocks (NISM XXI-A)
Which of the following best describes a bonus issue of equity shares by a company?
A bonus issue capitalises the company's free reserves by giving existing shareholders additional shares in proportion to their holdings, without any payment. It does not raise new money, unlike a rights issue, and differs from a buyback or a stock split.
- AIt raises fresh funds from existing shareholders
- BIt capitalises free reserves by issuing additional shares to existing shareholders without any paymentCorrect
- CIt reduces the number of shares by buying them back from the market
- DIt divides each share into shares of lower face value
Explanation
A bonus issue converts accumulated free reserves into share capital and distributes new shares to existing holders in proportion, with no cash payment. A rights issue raises funds, a buyback reduces shares, and a split lowers face value.
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