A stock split is when a company gives extra shares to its existing shareholders. The price of shares lowers but your overall investment value remains unchanged. It is done so as to make the shares more affordable; hence, pulling in more investors.
What It Means
When a company executes stock split, it indicates that the company is doing fine. It occurs when the company’s shares are valued highly, which puts them out of the reach of many. The reason for splitting the shares is to ensure that it is within the means of many.
Example
You own 10 shares valued at ₹1,000. After a 2 to 1 split, you will now possess 20 shares with a value of ₹500. In essence, total investments comes to 10,000.
Why Companies Do It
- Make shares cheaper.
- Attract more Investors.
- Show growth expectation.
Benefits
- Increases potential shareholders.
- More share transactions.
- Indicates that the company’s net worth is increasing.
Risks
- You do not get a corresponding rise in the value of your investment.
- The prices of the shares may be volatile.
Real Life Example: Bharti Airtel (2021)
In 2021, Bharti Airtel executed a stock split using the ratio 5:1.
- Before Split: 1 share = ₹600
- After Split: 5 shares = ₹120
This further lowered the price of Airtel’s shares thus making it more achievable to many investors.
