NISM Series XV : Research Analyst Certification Exam Notes
Page 48 Of 62
Go to:
Rights Issue - When a company needs additional equity capital, it has two choices - ask more money from existing shareholders or go for fresh set of investors. If company chooses latter i.e. issues shares to fresh set of investors, proportionate holding of existing shareholders gets diluted.
Subscribing to the rights issue is choice and not compulsion for investors. They may buy shares offered to them under rights issue or let the choice expire without any action or may choose to transfer their rights/entitlement to another person for consideration (sell) or without consideration (under love and affection). This is called renunciation of rights.
Rights entitlements also get traded on the stock exchange for a defined period. A rights issue is open for subscription for a minimum period of 15 days and a maximum period of 30 days.
Bonus Issue - A bonus issue, also known as equity dividend, is an alternative to cash dividend. Bonus shares are issued to the existing shareholders by the company without any consideration from them. The reserves lying in the books of the company (shareholders' money) gets transferred to another head i.e. paid-up/subscribed capital. Issuance of bonus shares is termed as capitalization of reserves
Stock Split - A stock split is a corporate action where the face value of the existing shares is reduced in a defined ratio. A stock split of 1:5 means split of an existing share into 5 shares. Accordingly, face value of shares will go down to 1/5th of the original face value. there is no change in its share capital since an increase in the number of shares is offset by a fall in the face value and resultant multiplier of face value and outstanding no. of shares remains the same
MODELEXAM® 
www.realsoftinfoplan.com