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A stock split is when a company decides to divide the face value of existing shares, thereby, creating more shares. This corporate decision is taken by the board of directors of a company after a meeting. So, after a stock split the total number of outstanding equity shares increases. This also leads to decrease in the price of one share. However, the total investment value of an investor remains the same.
A company decides to go for a stock split when they think the share price has increased drastically and they want to decrease the price of the share to make it more affordable to retail investors and small traders. This will increase liquidity as there will be more participation from the investor community.
Let us understand this with an example. Recently, Information Technology services company Affle announced a stock split. The company approved a stock split of one equity share of face value of Rs.10 each into five equity shares of face value of Rs.2 each. So, if you are holding 20 shares of Affle, after the stock split you will have 100 shares of the company.
Generally, whenever a company announces stock split and in its run up to the split date, the share price of the company rises.
Important Dates
Record Date: The date is important to all investors and shareholders as this date decides who are eligible to receive the stock split. If the shareholder is not present in the records of the company then they would not be eligible for the stock split.
Ex-Split Date: The date is normally one day before the Record Date. You must buy the share before this date, so that the it will reflect in your demat account as India follows a T+2 settlement cycle. Sometimes, it is just called “Ex-date”.
Below is the example of Dixon Technologies which recently split its stock.
|
Corporate Action |
EX-DATE |
RECORD DATE |
ANNOUNCED ON |
OLD FACE VALUE (FV) |
NEW FACE VALUE (FV) |
|
Stock Split |
18-Mar-21 |
19-Mar-21 |
02-Feb-21 |
Rs 10 |
Rs 2 |
To read on Bonus Issue of shares, click here