For investors hoping to take part in the expansion of different enterprises, the Nepalese stock market offers a multitude of investment options. Investors need to understand the concept of “Bonus Shares” and “Right Shares” while involved in the share market. Both entail the issuance of fresh shares, but they have different goals and affect shareholders in different ways. In this blog, we will understand the bonus shares and the difference between bonus shares and right shares.
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What are bonus shares?
Bonus shares are free shares given to current owners based on the amount of shares they currently own. These shares promote long-term investment and serve as a reward for loyalty. Bonus shares are subject to SEBON laws and the Securities Act, just as right shares.
A SEBON approval is required before bonus shares are issued. Businesses in Nepal provide bonus shares to reward customers for their loyalty, improve market sentiment, and boost liquidity by increasing the total number of shares in circulation.
What is the impact of bonus shares?
Dilution: As the total number of shares rises, bonus shares, like right shares, cause dilution of current shareholder ownership.
Market Price: Because of the additional liquidity, the short-term impact on the market price is often neutral or slightly positive. Market conditions and the company’s performance will determine the long-term effects.
No Subscription: Bonus shares are distributed without charge, and owners are not given the choice to sell or subscribe to them. Shareholder accounts are automatically credited with them.
Let’s say a Nepali business announces a 2:1 bonus share offering. A shareholder who owns 150 shares at the beginning of the bonus share issuance is entitled to an additional 300 shares at no further cost. Consequently, the bonus share allocation causes their overall holding to increase to 450 shares, essentially tripling.
Difference between bonus shares and right shares?
The difference between bonus share and right share is tabulated below:
| Feature | Right Shares | Bonus Shares |
| Price | Discounted | Free |
| Purpose | Raise capital | Reward loyalty, improve market sentiment |
| Subscription | Optional | Not applicable |
| Dilution effect | Yes | Yes |
| Market impact | Can initially depress | Neutral or slightly positive |
| Regulations | SEBON approval required | SEBON approval required |
You may also like:
- Right Share and how to apply for right share in Nepal
- Shares to Buy in Nepal
- How can I buy and sell shares in Nepal
FAQs
What are bonus shares, and how do they differ from right shares?
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Which is better, the right shares or bonus shares?
Is bonus share good or bad?
Conclusion
Making wise investment decisions requires an understanding of the right shares and bonus shares in the context of the Nepalese market. Both approaches entail the issuing of additional shares, but they must be carefully considered due to their differing goals, effects, and legal requirements.
Investors can strategically manage the Nepalese stock market by understanding the key distinctions and potential repercussions and making decisions that align with their investing objectives. A company’s financial structure is greatly influenced by both right shares and bonus shares, therefore investors should consider these factors while constructing a diversified portfolio.