Stocks and Shares (4)

There are also two other types of share issues an investor will come across in trading shares, and they are bonus and rights issues.


Bonus Issue

A bonus issue is the issue of new ordinary shares at no cost to existing shareholders but out of the company's reserves and in direct proportion to their existing shareholding in the company.

Bonus issues are used to enlarge the capital base of the company and may also be used as a means of rewarding its existing shareholders.

To be entitled to the bonus share, take note of the Ex-Date as only shares bought before the Ex-Date will be entitled to the bonus share.

The period from the day of announcement of the entitlement of bonus or rights issue or dividend to the day before the Ex-Date is commonly referred to as the cum-period.

Normally, Cum is a prefix meaning "with." A share that is cum-dividend means the buyer is entitled to a dividend currently attached to it.

The same is true for cum-rights and cum-bonus.