The board of Life Insurance Corporation of India (LIC) has approved its first‑ever bonus issue of equity shares. Shareholders will receive one additional share for every share they hold (a 1:1 ratio). The new shares are expected to be credited by mid‑June 2026 after necessary approvals.
Background
A bonus issue, also known as a scrip issue or capitalisation issue, involves issuing free additional shares to existing shareholders in proportion to their holdings. The company capitalises a portion of its reserves or surplus to create new shares. Although the number of shares increases, the market value of each share adjusts so that the total value of the shareholder’s holdings remains the same.
Details
- LIC’s move: The corporation will issue about 632 crore new shares, doubling its paid‑up share capital. The bonus will be funded from its large free reserves, estimated at over ₹12 lakh crore.
- Purpose: Companies often offer bonus shares to reward shareholders, improve liquidity and attract new investors. Bonus issues do not dilute ownership because the proportionate holding of each investor remains unchanged.
- Difference from stock split: In a stock split, existing shares are divided into smaller face‑value units (for example, one ₹10 share becomes five ₹2 shares). A bonus issue creates new shares without reducing the face value and uses internal reserves.
- Impact on investors: After the bonus, each shareholder will own twice as many shares, but the share price is likely to adjust accordingly. Dividends per share may decrease in the short term, but the total dividend payout remains linked to the company’s performance.
Source: Economic Times · Livemint · Investopedia