Chapter 4 · IPOs, FPOs and rights shares
Bonus shares and cash dividends
One gives you more shares and adjusts the price down; the other puts money in your bank account.
Nepali companies commonly declare a mix of the two, and beginners routinely misread the bonus half as free money.
| Cash dividend | Bonus share | |
|---|---|---|
| What you get | Money in your bank account | Additional shares |
| Where it comes from | The company's cash | Accumulated reserves, capitalised |
| Effect on price | Price adjusts down by the amount paid | Price adjusts down in proportion |
| Tax | Withheld at source | Treated differently — check current rules |
That is not to say bonus issues are meaningless. A company that can keep issuing them is one that keeps accumulating reserves, which is real. The mistake is treating the bonus itself as a return.
Book closure
To receive a dividend or a rights entitlement you must be on the shareholder register on the book closure date. Buying after that date means the entitlement stays with the seller — and the price will already have adjusted.
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