Have you ever looked at stock prices or read financial news and found yourself wondering:
- What exactly is a dividend, and do I get one just by owning shares?
- Why did the share price fall after a bonus issue?
- The company has announced a buyback—should I sell my shares or keep them?
- A rights issue has been declared—what does that mean, and do I need to do anything?
If these questions sound familiar, you’re not alone.
Many new investors often feel confused by these terms.The good news is that corporate actions aren’t complicated. They’re just decisions made by companies that can affect their shareholders. Once you understand how they work, you’ll feel more confident about your investments.
In this guide, I’ll explain the five most common corporate actions in India. We’ll use simple examples to show what they mean and how they might affect your money.
Let’s get started!
What Are Corporate Actions?
Corporate actions are company decisions that directly affect shareholders.
Think of it like a local bakery deciding to give free samples, launch a new outlet, or offer discounts. These moves affect customer interest and business value. Similarly, in the stock market, corporate actions affect:
- The price of a company’s shares
- The number of shares in the market
- Your decisions as an investor (buy, hold, sell)
They are usually approved by the Board of Directors and, sometimes, shareholders themselves.
For example, if Ravi owns a small manufacturing unit in Surat and announces a new product line, his business perception changes. Likewise, when a listed company announces a dividend or bonus issue, investors look at the company differently.
Why It Matters to You:
- Helps you make better buy/sell decisions
- Prepares you for stock price changes
- Maximizes your investment benefits
Let’s explore the five main types of corporate actions you’ll see in India.
Dividends: Getting Paid for Holding Shares
What Is a Dividend? A dividend is a cash reward paid by the company to shareholders out of its profits.
Example: If a listed company announces a dividend of ₹42 per share, and you own 100 shares, you will get: 100 x ₹42 = ₹4,200, directly credited to your bank account.
Why Do Companies Give Dividends?
- To reward loyal investors
- When they have excess cash
- To signal financial strength
Dividend Timeline:
| Stage | What Happens |
| Declaration Date | Company announces the dividend |
| Record Date | Shareholders are identified as on this date. |
| Ex-Dividend Date | Buy before this date to be eligible |
| Payout Date | Dividend credited to your account |
Buy shares at least one day before the ex-dividend date to receive the dividend. India follows a T+1 settlement cycle system.
Why Share Price Drops After Dividend
If a listed company declares a ₹15 dividend while trading at ₹335, the price usually drops to ₹320 on the ex-dividend day. Why? That cash is no longer in the company’s books.
Dividends can be paid even in loss-making years if the company has cash reserves. Look at dividend history to check consistency, not just one announcement.
Also read: When and why companies pay dividend
Bonus Issue: Free Shares Instead of Cash
What Is a Bonus Issue? Companies give extra shares for free, instead of paying cash. It’s like a loyalty gift.
Example: If a company announces a 2:1 bonus, for every 1 share you own, you get 2 more for free.
Why Do Companies Give Bonus Shares?
- To reward shareholders
- To reduce per-share price (making it affordable)
- To attract small investors
Effect on Investment Value:
| Bonus Ratio | Shares Before | Price Before | Shares After | Price After | Value |
| 1:1 | 100 | ₹75 | 200 | ₹37.5 | ₹7,500 |
| 3:1 | 30 | ₹550 | 120 | ₹137.5 | ₹16,500 |
The value stays the same, but the number of shares increases.
Bonus shares come from the company’s reserves. Face value does not change during a bonus issue.
To learn more about bonus issues, check out our earlier article explaining what a bonus issue is and how it affects stock prices.
Stock Split: Smaller Pieces, Same Value
What Is a Stock Split? A stock split divides existing shares into smaller units. It reduces the share price but keeps your investment value unchanged.
Example
If a company does a 1:2 stock split:
- 1 share becomes 2 shares
- Face value changes (e.g., ₹10 becomes ₹5)
If you sell cakes at ₹2000 each, few can afford them. Cutting the cake into four ₹500 pieces makes them more affordable.
Why Companies Do Stock Splits:
- To make shares affordable for small investors
- To boost trading activity
- To increase retail participation
Effect on Your Investment:
| Split Ratio | Shares Before | Price Before | Shares After | Price After | Value |
| 1:5 | 100 | ₹900 | 500 | ₹180 | ₹90,000 |
Bonus vs Stock Split Comparison:
| Feature | Bonus Issue | Stock Split |
| Face Value | No Change | Changes |
| Shares From | Company reserves | Share division only |
| Investor Benefit | Extra shares | Smaller-priced shares |
Stock splits improve liquidity but check if it’s backed by real growth.
Also Read: Why Stock Split
Rights Issue: Discounted Shares for Existing Investors
What Is a Rights Issue? A rights issue offers new shares at a discount—but only to existing shareholders.
Example:
If a stock is at ₹500 and there’s a 1:4 rights issue at ₹400. You can buy 1 share at ₹400 for every 4 you already own
Why Rights Issues Happen:
- To raise capital
- To pay off debt or fund expansion
- To avoid external loans
Caution:
- Check why the company needs money.
- If the stock is falling, better to wait than apply.
You can renounce your rights and sell them in the market. Always read the offer document.
We have written another article to understand the impact of the right issue on share price.
Buyback: Company Buys Back Its Own Shares
What Is a Buyback? A company repurchases its own shares, reducing total share count. This increases earnings per share (EPS).
Think of a mechanic in Nagpur with 5 partners. Business is booming. He offers to buy back a partner’s share to keep more profit. Same with companies!
Why Companies Do Buybacks:
- To improve EPS and shareholder value
- To signal confidence
- To support share price
- To prevent hostile takeovers
How Buybacks Happen:
| Method | Description |
| Tender Offer | Shareholders sell at a fixed premium price |
| Open Market | Company buys shares over time from market |
Example: If a company offers a buyback at ₹4,200 and the market price is ₹4,000, you can sell at a premium.
Buybacks can indicate undervaluation. But if you’re a long-term believer in the company, you can choose to hold instead of selling.
Also read: How Share Buybacks Impact Stock Price
Recap: At a Glance
| Corporate Action | What You Get | Why It Happens |
| Dividend | Cash | Reward for holding shares |
| Bonus Issue | Free Shares | To reward & reduce share price |
| Stock Split | More, cheaper shares | To boost affordability |
| Rights Issue | Discounted Shares | To raise money from shareholders |
| Buyback | Premium Offer | To increase shareholder value |
Conclusion
Understanding corporate actions isn’t just about knowing fancy words. It’s about knowing how your money moves. Whether you’re a small business owner, online seller, or salaried employee, this knowledge puts you in control.
Now that you understand dividends, bonus shares, stock splits, rights issues, and buybacks, you’re better equipped to:
- Track stock price movements
- Make smart investment decisions
- Avoid common beginner mistakes
You don’t need to be a finance expert. You just need clarity, curiosity, and the confidence to learn. Keep reading, keep asking questions, and remember: the stock market is not just for big players.
Frequently Asked Questions About Corporate Actions for Indian Stock Market Beginners
These are common terms, and most new investors have the same questions when they begin.
This FAQ is here to break things down—using real, relatable Indian examples—so you can make confident choices with your money.
What is a dividend, and how do I get it?
A dividend in India is a small part of a company’s profit that it shares with you, just because you own its shares.
Example:
If a company announces a ₹42 dividend per share and you own 10 shares, you’ll receive ₹420 directly into your bank account.
To be eligible, you need to buy the shares before the ex-dividend date—which is usually mentioned in the company’s announcement.
No extra forms, no action needed—it’s automatic.
If I get bonus shares, does that mean I’ve made extra money?
Not exactly. A bonus issue gives you free additional shares, but your total investment value stays the same.
Example
If you have 1 share of a company trading at ₹1,000 and the company gives a 1:1 bonus, you now own 2 shares—but each is worth ₹500.
You still hold ₹1,000 in value.
It’s like slicing a pizza into more pieces—you get more slices, but not more pizza.
What’s the difference between a stock split and a bonus issue?
Both increase the number of shares you own, but there’s one key difference: In a stock split, the face value of the share changes (for example, from ₹10 to ₹5). In a bonus issue, it stays the same.
Example
If a company splits its ₹10 face value share into ₹5 (1:2 split), every 1 share becomes 2. If you had 50 shares before, you’ll now have 100—but the price per share will be halved, so your total investment stays unchanged.
Should I buy shares during a rights issue?
Only if you believe in the company’s future. A rights issue in India lets you buy extra shares at a discount, but you’ll have to pay for them.
Example
If a company offers a 1:4 rights issue at ₹400 when the current market price is ₹500, it looks like a good deal. But if the share price falls to ₹350 later, it wouldn’t have been worth it. So always read the offer details and ask: “Why is the company raising money?”
Is it good to sell my shares during a buyback?
It depends. A buyback of shares in India is usually done at a price higher than the market price, which might give you a short-term gain.
Example
If a company announces a buyback at ₹450 and the market price is ₹420, selling your shares could earn you ₹30 extra per share. But if you’re confident the company will grow long term, you may choose to hold. There’s no one-size-fits-all answer—it depends on your goals.
