Corporate Actions in India: Understanding Dividends, Splits, Bonuses, and Rights Issues
Complete guide to corporate actions in Indian stock market. Learn about dividends, stock splits, bonus issues, rights issues, buybacks, and how they affect your investments.
Neha’s Surprise Portfolio Growth
Neha checked her demat account one morning and was confused. Her 100 shares of Reliance had become 500 shares overnight. The stock price had also dropped from ₹2,500 to ₹500.
“Did something go wrong?” she worried.
No—Reliance had announced a 1:5 stock split. Her total value was the same (₹2.5 lakh), but now she had more shares at a lower price.
This guide explains corporate actions like these—events that affect your shareholding without you doing anything.
What Are Corporate Actions?
Corporate actions are decisions by a company that affect its shareholders.
Types of Corporate Actions
| Action | What Happens |
|---|---|
| Dividend | Company shares profit with shareholders |
| Stock Split | Shares divided into smaller units |
| Bonus Issue | Free additional shares given |
| Rights Issue | Option to buy more shares at discount |
| Buyback | Company purchases its own shares |
| Merger/Demerger | Companies combine or separate |
| Delisting | Stock removed from exchange |
Dividends: Getting Paid to Own Stocks
What is a Dividend?
A dividend is a portion of company profits distributed to shareholders.
Types of Dividends
| Type | Description | Timing |
|---|---|---|
| Interim | Declared during financial year | Quarterly or mid-year |
| Final | Declared at year-end AGM | After annual results |
| Special | One-time extra dividend | Occasional |
Key Dividend Dates
| Date | Meaning |
|---|---|
| Declaration Date | Board announces dividend |
| Ex-Dividend Date | First day stock trades without dividend |
| Record Date | Must be shareholder on this date to get dividend |
| Payment Date | Dividend credited to account |
How to Get Dividends
To receive dividend: Own shares before ex-dividend date.
Example:
- Company declares ₹10 dividend
- Record date: July 15
- Ex-dividend date: July 14
- You buy on July 13: ✅ Get dividend
- You buy on July 14: ❌ Don’t get dividend
Dividend Yield
Formula:
Dividend Yield = (Annual Dividend / Current Stock Price) × 100
Example:
- ITC stock price: ₹450
- Annual dividend: ₹15
- Yield = (15/450) × 100 = 3.33%
High Dividend Stocks in India
| Stock | Approximate Yield | Consistency |
|---|---|---|
| ITC | 3-4% | Very consistent |
| Coal India | 8-12% | High but volatile |
| Power Grid | 4-5% | Consistent |
| ONGC | 4-6% | Variable |
| BPCL | 4-8% | Variable |
| HCL Tech | 3-4% | Growing |
Dividend Taxation
| Type | Tax Treatment |
|---|---|
| Dividend Income | Added to your income, taxed at slab rate |
| TDS | 10% if dividend > ₹5,000/year per company |
Stock Splits: More Shares, Same Value
What is a Stock Split?
Company divides existing shares into multiple shares, reducing price per share proportionally.
Common Split Ratios
| Ratio | Meaning |
|---|---|
| 2:1 | 2 shares for every 1 held, price halves |
| 5:1 | 5 shares for every 1 held, price becomes 1/5 |
| 10:1 | 10 shares for every 1 held, price becomes 1/10 |
Example: 2:1 Split
Before Split:
- Your shares: 100
- Price: ₹1,000
- Value: ₹1,00,000
After Split:
- Your shares: 200
- Price: ₹500
- Value: ₹1,00,000 (same)
Why Companies Do Stock Splits
| Reason | Benefit |
|---|---|
| Lower Price | Makes shares affordable for retail |
| Improve Liquidity | More shares traded |
| Psychological | Lower price seems “cheap” |
| F&O Lots | Smaller lot size possible |
What Happens After Split
| Factor | Typical Pattern |
|---|---|
| Short-term | Often rises on positive sentiment |
| Long-term | No fundamental change |
| Valuation | Remains the same |
Recent Stock Splits in India
| Company | Year | Ratio | Effect |
|---|---|---|---|
| HDFC Bank | 2019 | 2:1 | Improved liquidity |
| Reliance | 2017 | 1:1 (bonus) | More accessible |
| Nestle | 2020 | 10:1 | Price from ₹18,000 to ₹1,800 |
| MRF | Never | - | Still ₹1+ lakh/share |
Bonus Issues: Free Shares
What is a Bonus Issue?
Company issues additional shares to existing shareholders for free.
How It Works
Bonus Ratio 1:1: For every 1 share you own, you get 1 free share.
Example: 1:1 Bonus
Before Bonus:
- Your shares: 100
- Price: ₹800
- Value: ₹80,000
After Bonus:
- Your shares: 200
- Price: ₹400 (adjusts down)
- Value: ₹80,000 (same)
Bonus vs Stock Split
| Factor | Bonus Issue | Stock Split |
|---|---|---|
| Source | From reserves/profits | No source needed |
| Face Value | Remains same | Reduces |
| Signal | Company has surplus reserves | Making shares affordable |
| Tax | No tax on receipt | No tax |
Why Companies Issue Bonus
| Reason | Explanation |
|---|---|
| Reward Shareholders | Thank long-term holders |
| Increase Liquidity | More shares in market |
| Positive Signal | Company has retained earnings |
| Lower Price | More affordable for retail |
Recent Bonus Issues
| Company | Year | Ratio | Record Date |
|---|---|---|---|
| TCS | 2018 | 1:1 | Various |
| Bajaj Finance | 2017 | 1:1 | September |
| Various | Ongoing | Check NSE/BSE | Various |
Rights Issues: Option to Buy More
What is a Rights Issue?
Company offers existing shareholders the right to buy additional shares at a discounted price.
Key Features
| Feature | Description |
|---|---|
| Discount | Usually 20-40% below market price |
| Proportional | Based on existing holding |
| Optional | Can choose not to participate |
| Transferable | Can sell rights in market (RE symbol) |
Rights Issue Process
- Announcement: Company announces rights issue
- Record Date: Determines who gets rights
- Rights Entitlement (RE): Credited to demat
- Application Window: Typically 15-30 days
- Apply or Sell: Use the rights or sell them
- Allotment: New shares credited
Example: 1:4 Rights Issue
Scenario:
- You own: 400 shares
- Current price: ₹200
- Rights ratio: 1:4 (1 new share for every 4 held)
- Rights price: ₹150 (25% discount)
Your Options:
Option 1: Apply
- Rights entitled: 100 shares (400÷4)
- Investment needed: 100 × ₹150 = ₹15,000
- New holding: 500 shares
Option 2: Sell Rights
- Sell RE in market (trades separately)
- Don’t invest additional money
- Someone else buys your rights
Option 3: Let It Lapse
- Don’t apply, don’t sell
- Rights expire worthless (not recommended)
Rights Issue Calculation
Theoretical Ex-Rights Price (TERP):
TERP = (Old shares × Old price + New shares × Rights price) / Total shares
Example:
- Old shares: 400 at ₹200 = ₹80,000
- New shares: 100 at ₹150 = ₹15,000
- TERP = (80,000 + 15,000) / 500 = ₹190
Should You Apply for Rights?
| Apply If | Avoid If |
|---|---|
| Company is fundamentally strong | Company is raising money for debt repayment |
| Discount is attractive | Discount is minimal |
| You want to increase holding | You’re already overweight |
| Growth prospects are good | Future is uncertain |
Buybacks: Company Buying Its Own Shares
What is a Buyback?
Company purchases its own shares from shareholders.
Types of Buybacks
| Type | Description | Example |
|---|---|---|
| Tender Offer | Fixed price, first-come-first-served | IT companies |
| Open Market | Company buys from exchange | Less common in India |
Why Companies Buy Back
| Reason | Benefit |
|---|---|
| Excess Cash | Better than keeping idle cash |
| EPS Boost | Fewer shares = higher EPS |
| Signal Confidence | Company believes stock is undervalued |
| Tax Efficient | More tax-efficient than dividends for promoters |
How Buyback Works (Tender Offer)
Example: IT Company Buyback
- Buyback price: ₹1,800 (premium to ₹1,500 market)
- Total size: ₹16,000 crore
- Small shareholder quota: 15%
Process:
- Check if you’re eligible (small/large shareholder)
- Decide how many shares to tender
- Submit through broker
- If accepted, receive money at buyback price
Acceptance Ratio
Formula:
Acceptance Ratio = (Shares company will buy) / (Shares tendered)
If company wants 10 lakh shares but 50 lakh tendered:
- Ratio = 20%
- You tender 100, 20 get accepted
Is Buyback Worth It?
| Participate If | Skip If |
|---|---|
| Premium is significant (>15%) | Premium is small |
| You want to reduce holding | You want to stay invested |
| Tax situation favors | Transaction costs high |
| Acceptance ratio expected high | Large shareholder (lower quota) |
Mergers and Demergers
Merger (Amalgamation)
Two companies combine into one.
Example: HDFC + HDFC Bank merger
- HDFC shareholders received HDFC Bank shares
- Swap ratio determined by valuations
Demerger (Spin-off)
Company separates into two entities.
Example: L&T (if they spin off IT)
- Existing shareholders receive shares in both companies
What Shareholders Should Do
| Situation | Action |
|---|---|
| Good merger at fair ratio | Hold through merger |
| Poor merger terms | Sell before record date |
| Demerger of quality business | Usually hold |
| Demerger of poor business | Evaluate individually |
Delisting: When Stocks Leave Exchange
What is Delisting?
Company’s shares are removed from stock exchange.
Types of Delisting
| Type | Description | Example |
|---|---|---|
| Voluntary | Company chooses to delist | Vedanta, Dell (in US) |
| Compulsory | Exchange forces delisting | Non-compliance cases |
Voluntary Delisting Process
- Company announces intention
- Reverse book building (price discovery)
- Shareholders can tender shares
- If 90% acquired, delisting proceeds
- Remaining shareholders can exit at discovered price
What If Your Company Delists?
| Scenario | Your Options |
|---|---|
| Before Delisting | Tender shares at discovered price |
| After Delisting | Sell in exit window (limited time) |
| Miss Exit Window | Company must provide exit at last traded price for limited period |
Important Dates Explained
Understanding Record Date
The record date determines who receives the benefit.
How It Works:
- Corporate action announced
- Record date set (e.g., July 20)
- Settlement takes T+1 day
- Ex-date is usually 1 day before record date (July 19)
T+1 Settlement Impact
With T+1 settlement in India:
- Buy on July 18: Shares credited July 19, you’re on record
- Buy on July 19 (ex-date): Shares credited July 20, you miss record
How Corporate Actions Affect Your Portfolio
Impact Summary
| Action | Shares | Price | Value | Should You |
|---|---|---|---|---|
| Dividend | Same | Drops by dividend | Drops then cash received | Enjoy the cash |
| Split | Increase | Decrease | Same | Nothing to do |
| Bonus | Increase | Decrease | Same | Nothing to do |
| Rights | Your choice | Adjusts | Depends | Evaluate and decide |
| Buyback | Can decrease | Usually rises | Can increase | Evaluate participation |
Tax Implications
| Corporate Action | Tax Treatment |
|---|---|
| Dividend | Added to income, taxed at slab |
| Stock Split | No tax |
| Bonus | No tax on receipt, affects cost basis |
| Rights (not applied) | No tax (lapsed rights) |
| Buyback (sold to company) | 20% buyback tax on company (not shareholder) |
| Buyback (sold in market) | Capital gains tax |
How to Track Corporate Actions
Where to Find Information
| Source | Website | Use For |
|---|---|---|
| NSE | nseindia.com | Corporate announcements |
| BSE | bseindia.com | Corporate announcements |
| Your Broker | App notifications | Portfolio-specific updates |
| Moneycontrol | moneycontrol.com | Calendar, analysis |
| Screener | screener.in | Company-specific history |
Setting Up Alerts
Most brokers allow alerts for:
- Dividends on your holdings
- Upcoming record dates
- Rights issues
- Bonus announcements
Recommended: Enable all corporate action notifications in your broker app.
Corporate Action Calendar Example
Sample Month
| Company | Action | Record Date | Details |
|---|---|---|---|
| ITC | Dividend | 5th | ₹6.75/share |
| TCS | Buyback | 10th | ₹4,500/share tender |
| Reliance | AGM | 15th | Annual meeting |
| HDFC Bank | Dividend | 20th | ₹19/share |
| Infosys | Results | 25th | Q2 results |
Practical Scenarios
Scenario 1: You Own ITC Before Dividend
Situation:
- Own 200 shares at ₹420
- Dividend: ₹15/share
- Record date: August 5
What Happens:
- On August 4 (ex-date), price drops by ~₹15
- You receive ₹3,000 (200 × ₹15) within 30 days
- TDS of 10% = ₹300 deducted if dividend > ₹5,000
Scenario 2: Your Stock Does 1:2 Split
Situation:
- Own 50 shares at ₹2,000
- Split: 1:2
After Split:
- You have 100 shares at ₹1,000
- Total value: ₹1,00,000 (unchanged)
- Update your cost basis: Now ₹1,000/share instead of ₹2,000
Scenario 3: Rights Issue Decision
Situation:
- Own 500 shares at ₹800/share
- Rights: 1:5 at ₹600
- Current market: ₹800
Analysis:
- Rights entitled: 100 shares
- Investment: ₹60,000
- Discount: 25%
Decision: If company fundamentals strong, apply. You’re getting 25% discount.
Common Mistakes to Avoid
Mistake 1: Buying Just for Dividend
Wrong: “Stock has ₹10 dividend, let me buy” Reality: Price drops by ₹10 on ex-date
Mistake 2: Ignoring Rights Issue
Wrong: Let rights expire Right: Either apply or sell the rights
Mistake 3: Not Updating Cost Basis
Wrong: After split, using old purchase price Right: Adjust cost basis for capital gains calculation
Mistake 4: Panic on Ex-Date
Wrong: “Stock fell 3%, something’s wrong!” Right: Check if corporate action (dividend/split) happened
Action Checklist
When You Own a Stock
- Enable broker notifications
- Check for upcoming corporate actions monthly
- Calendar important dates
- Understand implications before acting
When Corporate Action Announced
- Note record and ex-dates
- Understand the impact on your holding
- For rights/buyback: analyze if participation makes sense
- Update tracking sheet after action completes
For Tax Purposes
- Keep records of all corporate actions
- Note dividends received (Form 26AS will show TDS)
- Calculate adjusted cost basis for splits/bonuses
- Consult CA if unsure about calculations
Risk Disclaimer
Corporate actions can affect your investment value and tax situation. Always read official company announcements. For complex situations like mergers or significant rights issues, consider consulting a financial advisor or CA.
Summary
Corporate actions are company decisions that affect your shareholding:
- Dividends: Cash rewards for holding (taxable)
- Splits: More shares, same value, lower price
- Bonus: Free shares, same total value
- Rights: Option to buy more at discount (decide carefully)
- Buyback: Opportunity to sell to company at premium
Stay informed, track record dates, and understand implications before they affect your portfolio.
Social Media Posts
LinkedIn: “My friend panicked when his 100 shares became 500 overnight. ‘Did the company fail?’ No—it was a stock split! His value was exactly the same. Corporate actions like splits, bonuses, and dividends can confuse new investors. Understanding them = investing confidence. #StockMarket #CorporateActions”
Twitter/X: “Stock splits don’t create wealth. They just give you more shares at lower price.
Before split: 100 shares × ₹1000 = ₹1,00,000 After 1:2 split: 200 shares × ₹500 = ₹1,00,000
Same value, different packaging. Don’t fall for ‘split excitement.’ #Investing”
Instagram: “Corporate Actions 101 📊
💰 Dividend: Company shares profit with you ✂️ Split: More shares, lower price 🎁 Bonus: Free additional shares 📝 Rights: Buy more at discount 🔄 Buyback: Sell back to company
All affect your portfolio! Stay informed 📱
#StockMarketIndia #InvestingBasics”