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Difference between the Ex-date and Record date in Stock Markets?

Sometimes traders miss out on dividends, bonuses, and other rewards because they are too busy trading to look closer to what the business has to say. If this is the case, they will be blind to the Ex-date and Record Date in the stock market, causing them to miss out on tax-free advantages such as dividends and bonuses.

So, to better grasp the variation between the ex-date and record date in the stock market, let's use the instance of a bonus.

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Corporate Action and Its Effects:

If a shareholder holds a certain shareholding of the business, the corporation will offer a bonus unit to that shareholder at no extra cost.

Businesses offer bonus shares as a way to profit from their unrestricted cash flow. Because they don't expect to incur any CAPEX or expand anytime soon, they distribute their reserved profits to shareholders.

The firm's EPS declines as a result of the share buyback program.

The company's reserve and buffer (retained profits) are reduced as a result of the bonus issuance.

Every stakeholder receives a bonus share in proportion to their ownership interest in the business.

Ex-Date and Record Date cum Bonus Date:

Two key dates must be considered in order to know whether you are eligible for the incentive share. They're the end-of-period and record-keeping dates, respectively.

Even by record date, an investor must hold shares of the business in order to be qualified for a reward the company has declared.

To be entitled to a bonus share, an investor must own the stock on the record date.

The units are known as "Cum bonus" well after bonus declaration but prior to the record date.

Since our trading process is based on T+2 days, the Ex-date is typically set one business day before the entire record date.

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Who is eligible for bonus Share?

For the distribution of shares, India utilizes a T+2 rolling settlement system.

As a result of this, shares must be purchased before the Ex-date in order for your Demat account to be deposited on the record date. As a result, you will not be entitled to the bonus share, but the seller of your shares would be.

Whether it's stock splits or dividends, this rule applies to every business move.

The additional share is yours if you buy the stock a day before the expiration date. After the record date, bonus shares are usually transferred to shareholders' accounts within fifteen days.

Effect on Share Price?

Because of the bonus shares, the stock price of the business has fallen in lockstep with the number of shares issued. As a result, on the date of the Ex-date for a 1:4 bonus issuance, the share assessment price often drops by 25%.

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What are Actually Bonus Shares?

Current shareholders of a business may be entitled to receive bonus shares, which are free extra shares based on how many shares they currently possess.

Why Company offers Bonus Shares?

In order to capitalize its free reserves, the business distributes bonus shares, which raises EPS and compensated capital while reducing reserves and surplus. In addition, it attracts fresh investors to the firm.

Once bonus units are granted, what changes to the stock price on the open market?

The share's market value decreases in direct proportion to the issuance of the bonus share.

What is ex-bonus date?

Like the T+2 trading phase is observed, the ex-date is one business day before the record date.

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