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Market Intelligence › Basic Terminologies
Corporate actions that change the share count, and which of them actually creates wealth
Published by The Retail Trader · JUL 27, 2026 · Market Basics
After all three corporate actions you end up holding more shares and the price drops, so people assume they are the same thing. The math behind each is different, and one of them requires you to pay money.
In a bonus issue, the company gives you extra shares for free out of its reserves. With a 1:1 bonus, your shares double, the price halves, and your total value stays the same. No new money comes from anywhere.
In a split, the face value is broken up. One share with a face value of 10 rupees turns into five shares with a face value of 2 rupees each. Here too the value stays the same; only the ticket size gets smaller.
A rights issue is different from both. The company gives you the right to buy new shares at a discount, and you have to pay for them. That is fundraising, not a gift.
These four misconceptions show up most often:
• A bonus does not create wealth. The same wealth is simply divided into more pieces.
• After a bonus the price has not become "cheap". It has been adjusted.
• Not taking part in a rights issue dilutes your holding.
• Historical price charts must be adjusted for bonuses and splits, otherwise the gap looks like a crash.
Whenever a stock on a chart suddenly drops to exactly half or one third with no news, check for a corporate action first. A long-term return calculated on unadjusted raw prices is not just a little off. It is completely wrong.
This article is for educational purposes only. It is not a buy or sell recommendation, not a claim of guaranteed returns, and not advice. Rules, rates and mechanics change from time to time at the exchanges, SEBI and the RBI, so verify every number yourself with your broker or an official source.