- The bonus shares are credited to demat a/c at no cost. Bonus shares are issued for free and hence, their buy price is considered zero.
- After getting bonus shares, the quantity of the shares increases but the value of the investments remain same, which leads to reduction of average buy price.
- The holding average is calculated using the First in First out (FIFO) method.
FOR EXAMPLE: - If an Investor A , bought 100 shares of a company at ₹ 60.
- Then, value of investment = ₹ 6,000 and avg. buy price = 60.
- Now, if the company declares 2:1 bonus, A will get 200 shares for free and his total holding will increase to 300 shares.
- Then, value of investment = ₹ 6,000 and avg. buy price = 6,000/300 = ₹ 20
- Thus, The average buy price of a stock is reduced after the credit of bonus shares to the account.
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