Objective of Issued Bonus Shares

Issuing bonus shares is a common strategy employed by companies to reward their existing shareholders. These shares are distributed to the shareholders in proportion to their existing shareholding, free of cost. The primary objective of issuing bonus shares is to enhance shareholder value and improve investor sentiment. Below are the key objectives of issuing bonus shares according to SEBI Guidelines for Issue of Bonus Shares:

1. Capitalization of Reserves:
- One of the main objectives of issuing bonus shares is to capitalize the reserves of the company.
- When a company generates profits, it can allocate a portion of those profits to the reserves instead of distributing them as dividends.
- By issuing bonus shares, the company converts its accumulated reserves into additional share capital, thereby increasing the company's net worth.

2. Encouraging Retail Shareholders:
- Issuing bonus shares enables companies to increase the number of shareholders.
- This is particularly beneficial for retail shareholders who may not have the financial capacity to purchase additional shares.
- By distributing bonus shares, companies can allow smaller investors to participate in the growth of the company without incurring any additional cost.

3. Enhancing Liquidity:
- Issuing bonus shares increases the number of shares outstanding without any change in the underlying assets or earnings of the company.
- As a result, the liquidity of the company's shares in the stock market improves.
- This increased liquidity can attract more investors, which may positively impact the share price in the long run.

4. Improving Market Perception:
- Issuing bonus shares is generally perceived positively by the market as it reflects the company's financial strength and ability to capitalize its reserves.
- This can improve investor sentiment and attract more attention from potential investors.

5. Facilitating Future Capital Raising:
- Companies that have issued bonus shares in the past may find it easier to raise additional capital in the future.
- The increased number of shares outstanding can create a larger shareholder base, potentially attracting more interest from institutional investors and facilitating future capital raising activities.

Conclusion:
Issuing bonus shares serves several objectives, including capitalizing reserves, encouraging retail shareholders, enhancing liquidity, improving market perception, and facilitating future capital raising. These objectives collectively contribute to enhancing shareholder value and strengthening the company's position in the market.