What is Split Share and How Does it Work?
What is a Split Share?
A split share is basically when a company divides its existing shares into multiple shares. The total value of the shares, or the company's market capitalization, remains the same, but the price per share decreases. Imagine you have one big pizza, and you cut it into smaller slices. The pizza itself hasn't changed, but now there are more pieces to go around.
What reason for split share?
To make shares more affordable at a discount price.
To increase liquidity in the market for investors.
To attract more investors for investing.
How to work a Split Share?
Let's see step by step:
Company Decision : First, a company decides to split its shares.
Ratio Determination : They choose a split ratio, like 2-for-1 or 3-for-1.
Shareholder Approval : Sometimes, they need shareholders to agree.
- Implementation : On a set date, each share splits according to the ratio.
An Example to Make it Clear
Imagine you own 500 shares of ABC Company, and each share is worth Rs 100. The company decides on a 2-for-1 split. After the split:
You will get more than 500 shares, now you have a total of 1000 Shares.
Each share is now worth Rs 50.
The total value of your investment stays the same: Rs 50000
What are the Benefits of Split Shares?
Split shares can be good for both companies and investors:
More Affordable : Lower share prices can attract more investors.
Increased Liquidity : More shares mean easier buying and selling.
- Psychological Boost : People often feel they're getting more for their money.
What are the potential drawbacks of Split share?
No Real Value Change : Your investment's total value doesn't increase.
Possible Short-Term Volatility : Prices might fluctuate right after a split.
Administrative Costs : Companies do incur some expenses in the process.
Face value: The stock's face value will decrease and you will get a small dividend.
How Split Shares Affect Your Investment?
Your ownership percentage in the company doesn't change.
The total value of your investment remains the same.
You might see some short-term price movements.
Stock face value will decrease and you will get a small dividend.
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