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 shares by a company?
A bonus issue is the free allotment of additional shares to existing shareholders in a stated ratio, funded by capitalising reserves. No cash is paid by shareholders, unlike a rights issue.
- AShares issued free to existing shareholders in a fixed ratio out of reservesCorrect
- BNew shares offered to existing shareholders at a discount for cash
- CBuying back shares from shareholders at a premium
- DSplitting the face value of each share into smaller denominations
Explanation
A bonus issue capitalises free reserves and issues additional shares to existing shareholders without payment. A rights issue requires cash, a buyback reduces shares, and a split changes face value without using reserves.
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