Every book-closure season, the excitement is the same: "20% bonus announced!" People rush to buy before the book closure date. Then the price adjusts and they wonder where the gain went.
Let's clear this up.
Cash dividend
The company pays you cash from its profits. If you own 100 shares and it declares a 10% cash dividend on a Rs 100 face value, you get Rs 1,000 before tax. Tax is withheld before it reaches your bank account.
Real money leaves the company and comes to you.
Bonus shares
The company gives you extra shares instead. A 20% bonus on 100 shares gives you 20 more, for 120 total.
But no money left the company. The same business is just cut into more pieces. That's why the market price adjusts downward after book closure. If a share was Rs 600 before a 20% bonus, the adjusted price is roughly Rs 500. Your 120 shares at Rs 500 are worth about what your 100 shares at Rs 600 were.
Think of it as cutting a pizza into 10 slices instead of 8. You don't get more pizza.
Also note: tax on bonus shares is typically payable on their face value, so you may need to pay some cash even though you received no cash.
Which is "better"?
Neither, automatically. A company paying big dividends isn't necessarily healthier than one reinvesting profits to grow. Some Nepali banks have issued bonus shares year after year mainly to meet capital requirements, which tells you something different from "the business is booming."
Before you act
Read the company's official announcement for the book closure date, the ratio and whether AGM approval is still pending. For tax, check with the IRD or a tax professional, since rates and rules change.
Don't buy a share only for its dividend or bonus. Buy it because you like the business at that price.
General information, not personal financial advice. Rules, rates and fees change, so check with the official source before you act.
No comments:
Post a Comment