Reliance AGM 2024: What is a Bonus Issue and How Does It Benefit Shareholders?

At its upcoming annual general meeting on August 29, Reliance Industries Limited (RIL) announced that its board will meet on September 5 to discuss a potential bonus issue of shares. But what exactly is a bonus issue, and why does it matter to investors?

A bonus issue is when a company gives additional shares to its existing shareholders for free. This move is typically made to reward loyal investors and enhance the company’s attractiveness in the market. For instance, if the board approves a bonus issue, shareholders might receive one new share for every two shares they already own.

The board of directors decides the specifics of the bonus issue, including the ratio of bonus shares to existing shares. This process increases the company’s share capital but does not change its overall market capitalization. Market capitalization is calculated by multiplying the stock price by the total number of shares, while share capital refers to the funds raised through issuing shares.

A bonus issue is usually funded from the company’s profits or reserves, making the company look appealing to investors. However, it does come with a trade-off. The funds used for issuing bonus shares could have been invested back into the business, representing an opportunity cost for the company.

For shareholders, receiving bonus shares doesn’t change the tax situation in terms of capital gains. Taxes are still applicable if they sell the bonus shares in the future. On the other hand, the company itself does not incur tax liabilities from issuing bonus shares.

RIL’s Bonus Issue Plans

At the 47th AGM, Reliance Industries’ Chairman Mukesh Ambani revealed that the company is considering a bonus issue at a 1:1 ratio, meaning shareholders could receive one new share for every share they currently hold. The final details will be announced following the board meeting on September 5.

As India’s largest company by market capitalization, Reliance’s move to issue bonus shares is a significant event for investors and the market alike. Stay tuned for more updates on this development.