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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks

Which of the following best describes a 'stock split' as a corporate action?

A stock split reduces the face value of each share and increases the number of shares proportionally, so total share capital stays unchanged. This differs from a bonus issue, which capitalises reserves, and from a buyback, which reduces shares outstanding.

  1. AThe face value of each share is reduced and the number of shares increases, leaving total share capital unchangedCorrect
  2. BFree shares are issued by capitalising reserves, increasing share capital
  3. CNew shares are offered to existing holders at a discount
  4. DThe company repurchases shares from the market, reducing share count

Explanation

In a split, the face value is subdivided (for example Rs 10 to Rs 2), so the number of shares rises proportionally while paid-up capital stays the same. A bonus issue capitalises reserves and raises share capital. Rights issues raise fresh funds, and buybacks reduce share count.

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