HDFC Bank might give you free shares: Here’s how the bonus issue works

In a potential first, India’s largest private-sector lender, HDFC Bank, is considering a proposal to issue bonus shares to its shareholders. The bank’s board is scheduled to meet on July 19 to deliberate on the plan.

If approved, this would mark the first-ever bonus issue in the bank’s history — a move that could reward existing shareholders with free additional shares.

What Is a Bonus Issue?

A bonus issue refers to the distribution of free additional shares by a company to its existing shareholders, typically as a way to reward loyalty. The issuance is done in a specific ratio — for instance, 1:1 or 1:2 — which means for every share you hold, you receive one or two additional shares at no extra cost.

However, investors should note that while the number of shares increases, the overall value of the investment remains the same. For example, if you hold one share priced at ₹100, and the company announces a 1:1 bonus, you’ll receive one more share — but each share will now be worth around ₹50.

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So, What’s the Point?

Though the total value doesn’t change immediately, bonus shares come with several key benefits:

• Affordability: A lower stock price makes it more attractive and accessible to a broader base of investors, which can increase market demand and potentially push up the price over time.

• Flexibility: With more shares in your account, you can sell in smaller lots, giving you better liquidity and trading flexibility.

• Tax Advantage: Bonus shares are not taxed at the time of issuance, unlike dividends which are taxable in the year they are received.

• Future Dividends: Holding more shares means you’re eligible for higher dividend payouts in the future, should the company continue to perform well.

What Next?

If the proposal is cleared on July 19, the bank will also announce a record date — a crucial deadline that determines who qualifies for the bonus shares. For instance, if the cut-off date is set as July 20, then all shareholders holding HDFC Bank shares on that date will be eligible for the bonus issue.

Whether you’re already invested or planning to enter, this could be a rare opportunity to benefit from the bank’s strong performance and shareholder-friendly approach. Keep an eye on HDFC Bank’s board meeting on July 19 — it might just bring some free shares your way.