Make Use of Stock Splits
What is Stock Split?
Stock split is the process of splitting shares with high face value into shares of a lower face value. It’s like getting an Rs.20 note changed for two Rs.10 notes. The value changes of neither note nor splitted stock.
Effect of stock split
A stock split increases the number of shares in a public company. The price is adjusted such that the market capitalization of the company almost remains same.
Why stock split is done?
1) Companies usually split their stock when they think the price of their stock exceeds the amount smaller investors would be willing to pay. “It is aimed at making the stock more affordable and liquid from retail investors’ point of view.”
2) Generally, there are more buyers and sellers of shares trading at Rs.100 than say, Rs.400, as retail shareholders may find low-price stocks to be better bargains. Stock splits are usually initiated after a huge run-up in the share. This run-up may be linked to the performance of the stock.
Benefit to shareholders after stock split and bonus issue
Due to stock split, the high priced stocks will be available at lower rates. The retailer or small investors can easily afford to buy stocks of low price. There is also a probability that after stock split; the stock price may go up as more investors may rush to buy stocks at lower rates.
When to buy stock split stock?
a) If you wish to get benefited from stock split then you have to buy those stocks before record date.
b) A company announces record date.
c) If you buy those stocks before record date then you will be eligible for stock split.
d) If you are not interested to buy stock after stock split where the stocks are available at lower rates.
3) The company may declare such splits in different ratios like 2-for-1, 3-for-1, 3-for-2, or like 4-for-1. Some companies may go to the extent of declaring a 10 for 1 split, as power services company GVK Power did recently.
For example, XYZ Company is trading at Rs.250 and you hold 100 shares. Hence, the total value of your holding is Rs.25, 000 (250x100).
4) If this company declares a 2-for-1 stock split, your 100 shares become 200 and the share price is adjusted to Rs.125.
The value of your investment still remains the same (this time, 125x200). And if the company had 10 lakh outstanding shares before the split, it will now have 20 lakh outstanding shares after this split, keeping the market cap unchanged.
5) Sometimes, companies may choose to club stock split issue with bonus shares. Bangalore based jewellery manufacturer Rajesh Exports recently declared a 2-for-1 stock split along with a bonus offer of two shares for each share held.
6) This means that each share becomes two, post-split. Now, for these two shares, shareholders will get four additional shares as bonus. Thus, one share translates into six after stock split and bonus issue.
“To ensure increased liquidity for existing shareholders and easy entry point for new shareholders, the decision was made to split the share.”
Disclaimer: Information presented on this site is a guide only. It may not necessarily be correct and is not intended to be taken as financial advice nor has it been prepared with regard to the individual investment needs and objectives or financial situation of any particular person. Stock quotes are believed to be accurate and correctly dated, but www.stockmarketindian.com does not warrant or guarantee their accuracy or date.
www.stockmarketindian.com takes no responsibility for any investment decisions based on recommendations provided on website.
Financial contents like Technical charts, historical charts and quotes are taken from NSE and Yahoo sites.
Note - All quotes are delayed by 15 minutes and unless specified.
Google Adsense Ads are posted on every page of the website so visitors clicking on Ads and going to those links and carrying any financial deal is not at all related to www.stockmarketindian.com and any financial deal should be done on their own sole responsibility.
Please read at www.stockmarketindian.com/disclaimer.php before using any material or advice given at www.stockmarketindian.com
Copyright © 2006-2012 StockMarketIndian.com. All Rights Reserved
Following are terms to search more information
stock split 2012
stock split bonus
stock split price
abb stock split
bonus issue stock split
effect of stock split
gmr infra stock split
gmr stock split
indian stock split
stock split and bonus
stock split and bonus
stock split bse
stock split dates
stock split in 2007
stock split effect
stock split india
stock split news
stock split pdf
stock split ratio
stock split record date
stock split shares
recent stock splits
what is stock split
bonus issue and stock split
stock market guide
impact of stock split
latest stock split
meaning of stock split
nse stock split
record date for stock split
reverse stock split
what is a stock split
stock split announcement
stock split calendar
stock split details
stock split history
stock split in india
stock split information
stock split meaning
stock split vs bonus
stock splits in india
why stock split
Welcome to Investment House......your way to earn
Stock Market Indian
Stock Market Indian