Understanding Corporate Action: Reliance & Dr. Reddy’s
Corporate actions like stock splits and bonus issues can feel a bit confusing. Recently, Reliance announced a 1:1 bonus issue, and Dr. Reddy’s has declared a 1:5 stock split. If you’re wondering what this means for your investments and when you can trade your new shares, here’s a quick breakdown.
What is a Stock Split and Bonus Issue?
- Stock Split: In a stock split, a single share is divided into multiple ones, reducing the price per share but keeping the overall value the same. Dr. Reddy’s 1:5 split means each existing share will become 5 shares. This helps make shares more affordable and improves liquidity.
- Bonus Issue: In a bonus issue, extra shares are issued to existing shareholders at no additional cost. A 1:1 bonus from Reliance means if you own 1 share, you’ll receive 1 additional share for free. Bonus issues increase the share count but don’t alter the overall value of your holdings.
Can You Sell Your Existing Shares Right Away?
Yes, your existing shares—the ones already settled in your demat account—can be freely bought or sold. There’s no restriction on trading these shares as they’re already in your possession.
Why Can’t You Sell the New Shares Immediately?
Here’s where the wait comes in. Since stock splits and bonus shares need a bit of time to be processed and credited to your demat account, there’s a delay in making them available to trade.
- For the Stock Split (Dr. Reddy's): The new split shares will usually be credited on Ex-date + 1 day, which is the day after the split becomes effective.
- For the Bonus Issue (Reliance):Bonus shares are typically credited between Ex-date + 2 to 7 working days. This period allows the company and exchanges to process and settle the new shares.
Note: Until these shares are credited, they won’t show up in your demat account, so you won’t be able to sell them.
What Happens to the Average Price?
Once your new shares are credited, your average cost per share will automatically adjust. Here’s how it works:
- For Splits: The cost per share will reduce since you now own more shares at the same total value.
- For Bonus: The average cost per share will also drop as your share count has increased with no additional investment.