Know what the stock split is, why it is done, and how it affects the company and shareholders.

 

Stock split means share split. The company splits its shares under a stock split. Generally, when the shares of a company become very expensive, then small investors are not able to invest in those shares. In such a situation, the company also resorts to a stock split to attract small investors towards its shares and to increase the demand in the market.

 

If a company splits its shares into two shares, the shareholders are given one additional share for each share they hold. This doubles the number of shares the shareholder already has. This does not affect the value of the investment, because splitting each of the two shares into two shares reduces the value of each share by half.

 

The share split increases the number of shares of the company. But this does not affect the market capitalization of the company. Stock splits make the company's shares more liquid. Many times people consider the stock split to be a bonus share. But these two are different things.

 

A stock split reduces the price of shares. This makes it easier for small investors to invest in the shares of that company. The price of those stocks suddenly increases as the price decreases. Hence those stocks are seen to rise for some time after the split.

 

Most recently, Eicher Motors shares were split on August 24, 2020, last month. The company divided its one equity share with a face value of Rs 10 into 10 shares with a face value of Rs 1-1.