Bajaj Finance's 4:1 Bonus Issue Explained: Here's What it Means for Investors

After a relatively strong Q4 performance, Bajaj Finance has caught investor attention yet again. This time for its 4:1 bonus issue. The company is offering a bonus issue after around 9 years, with the first such issuance made in 2016. On top of this, the leading NBFC also announced a stock split in the ratio of 1:2.

The company, which reported a 19% year-on-year rise in net profit along with improved asset quality, stated that both the bonus issue and stock split will be executed on or before June 27, subject to necessary approvals. "The bonus issue reflects the Company's strong financial position, robust reserves, and positive growth outlook," the company said in a statement.

While a bonus issue means shareholders get extra shares for free, a stock split simply breaks each share into smaller units.

What Does This Mean for Shareholders?

A 4:1 bonus issue means that existing shareholders will receive 4 additional shares for every 1 share. For instance, if an investor owns 100 shares, he/she will have 500 shares (400 + the existing 100 shares). While the count of shares will surge, the overall value of the investment will remain the same.

As for the 1:2 stock split, each existing share will be split into 2. So if an investor owns 10 shares, he/she will now own 20 after the stock split. Again, the total value of investment will remain the same and the price will be adjusted accordingly.

Companies often implement this method to make the stock more economical and attractive for investors. Currently, Bajaj Finance shares are trading at around Rs 8,800 on the National Stock Exchange.

Bajaj Finance Shares

On Friday, Bajaj Finance shares surged over 3%, trading around the Rs 8,900 price mark on the bourses. It is worth mentioning, that the NBFC firm's shares have witnessed a surge of 30% in the last 6 months. So far this year, the stock price has jumped from Rs 6,935 to Rs 8,912 (as of May 2).

However, the shares of Bajaj Finance are still trading 7% lower from its 52-week-high of Rs 9,660 price level.