Corporate Actions
Learn about corporate actions like stock splits, bonuses, and rights issues.
🏢 Corporate Actions
When Companies Make Moves That Change Everything
Every listed company is a living, breathing entity — it grows, restructures, rewards shareholders, raises capital, and sometimes reinvents itself entirely. All these significant company-level decisions that directly impact your shares, their price, and your portfolio are called Corporate Actions.
Understanding corporate actions isn’t just useful — it’s essential. Missing an important date or misunderstanding an announcement can cost you money or cause you to miss a significant opportunity.
🤔 What Are Corporate Actions?
Definition
Corporate actions are events or decisions initiated by a publicly listed company that bring a material change to its securities — affecting shareholders directly.
These actions can:
- Change the number of shares you hold
- Change the price of each share
- Put money in your pocket
- Give you the right to buy more shares
- Change the structure of the company entirely
Who Decides?
Board of Directors proposes action
↓
Shareholders vote (if required)
↓
Regulatory approvals (SEBI, Stock Exchange, RBI, CCI, etc.)
↓
Action executed
↓
Impact on your Demat account🗂️ Types of Corporate Actions
Corporate actions fall into three broad categories:
┌────────────────────────────────────────────────────────┐
│ CORPORATE ACTIONS │
├──────────────────┬──────────────────┬──────────────────┤
│ MANDATORY │ VOLUNTARY │ MANDATORY WITH │
│ CORPORATE │ CORPORATE │ CHOICE │
│ ACTIONS │ ACTIONS │ │
│ │ │ │
│ Happen │ Shareholders │ Action happens, │
│ automatically │ choose to │ shareholders │
│ — no choice │ participate │ choose the form │
│ │ │ │
│ • Stock Split │ • Rights Issue │ • Dividend in │
│ • Bonus Shares │ • Buyback │ cash or stock │
│ • Merger │ (tender offer) │ • Scheme of │
│ • Dividend │ • Open offer │ arrangement │
│ • Delisting │ │ options │
└──────────────────┴──────────────────┴──────────────────┘1. 📤 Dividend
(Covered in detail in the Dividends & Bonuses section)
Quick Recap
A distribution of company profits to shareholders.
Types:
- Interim Dividend: Declared during the financial year
- Final Dividend: Declared after annual results at AGM
- Special Dividend: One-time extraordinary payment
Key Impact:
- Cash credited to your bank account
- Share price drops by approximately the dividend amount on ex-date
- Taxable in your hands at your income slab rate
2. 🎁 Bonus Issue (Bonus Shares)
(Covered in detail in the Dividends & Bonuses section)
Quick Recap
Free additional shares given to existing shareholders from the company’s reserves.
Format: X:Y ratio (e.g., 1:1 means 1 free share for every 1 held)
Key Impact:
- More shares in your demat, same total value
- Share price adjusts downward proportionally
- Face value remains unchanged
3. ✂️ Stock Split
What is a Stock Split?
A stock split divides existing shares into multiple smaller shares, reducing the face value proportionally.
1 share of ₹10 face value
↓ (2:1 split)
2 shares of ₹5 face value eachYour total investment value doesn’t change — just divided into more pieces.
Split Ratio Explained
Split Ratio = New Shares : Old Shares
2:1 → Each share becomes 2 shares (face value halves)
5:1 → Each share becomes 5 shares (face value becomes 1/5th)
10:1 → Each share becomes 10 sharesDetailed Example
You hold: 100 shares of MRF @ ₹1,50,000 per share
Total Value: ₹15,00,00,000 (₹15 crore)
MRF announces 10:1 split
| Before Split | After Split | |
|---|---|---|
| Shares Held | 100 | 1,000 |
| Face Value | ₹10 | ₹1 |
| Share Price | ₹1,50,000 | ₹15,000 |
| Total Value | ₹15 crore | ₹15 crore |
Same wealth, more shares, lower price per share.
Why Companies Split Shares
✅ Improve Affordability: A ₹1,50,000 stock becomes ₹15,000 — more investors can buy
✅ Increase Liquidity: More buyers = more trading volume
✅ Psychological Appeal: Lower price feels accessible
✅ Broaden Shareholder Base: More retail participation
✅ Signal Confidence: Companies typically split only when price has risen significantly
Stock Split vs Bonus Shares
| Feature | Stock Split | Bonus Shares |
|---|---|---|
| Mechanism | Divides existing shares | Issues new shares |
| Reserves | No change | Decreases |
| Face Value | Decreases proportionally | Unchanged |
| Share Capital | Face value changes, count increases | Capital increases |
| Accounting entry | Face value adjustment only | Reserves → Paid-up capital |
| Example | 2:1 split: 100@₹10 → 200@₹5 | 1:1 bonus: 100@₹10 → 200@₹10 |
Famous Stock Splits in India
- Reliance Industries: Multiple splits over decades
- Infosys: 2:1 splits that made early investors wealthy
- Wipro: Numerous splits + bonuses over 30+ years — legendary wealth creator
- HDFC Bank: Regular splits as price appreciation warranted
- Tata Consultancy Services (TCS): Post-listing splits
4. 📬 Rights Issue
What is a Rights Issue?
A company offers existing shareholders the right to buy additional shares at a discounted price, before offering to the public.
It’s called a “rights” issue because shareholders have the right — but not the obligation — to participate.
How It Works
Company needs to raise capital
↓
Announces Rights Issue (e.g., 1:5 at ₹80, market price ₹100)
↓
Each shareholder gets Rights Entitlement (RE) in their demat
↓
Three choices for each shareholder:
1. Apply for shares (pay ₹80, get shares)
2. Sell RE on exchange (earn premium without paying)
3. Do nothing (RE lapses, holding slightly diluted)Rights Issue Example
You hold: 500 shares of Company XYZ
Rights Issue: 1:5 at ₹80 per share (market price: ₹100)
| Details | |
|---|---|
| Rights Entitlement | 500 ÷ 5 = 100 shares |
| Price to pay | 100 × ₹80 = ₹8,000 |
| Discount | ₹20 per share (20% off market price) |
| If you apply | Holding becomes 600 shares |
| If you ignore | Holding stays 500 shares (diluted) |
Rights Entitlement (RE) Trading
Since 2020, SEBI allows Rights Entitlements to be traded on exchanges during the issue period.
- If you don’t want to participate, sell your RE to someone who does
- RE has its own price based on discount value
- Listed and tradeable like any stock
RE Price (approx) = Market Price − Issue Price
Market Price = ₹100, Issue Price = ₹80
RE Value ≈ ₹100 − ₹80 = ₹20 per RETheoretical Ex-Rights Price (TERP)
After a rights issue, the market price adjusts:
TERP = (Market Cap + Rights Proceeds) / (Old Shares + New Shares)
Example:
Market Price: ₹100, Shares: 1,000
Rights: 200 new shares at ₹80
TERP = (1,000 × ₹100 + 200 × ₹80) / (1,000 + 200)
= (₹1,00,000 + ₹16,000) / 1,200
= ₹1,16,000 / 1,200
= ₹96.67Recent Major Rights Issues in India
| Company | Year | Amount | Ratio |
|---|---|---|---|
| Reliance Industries | 2020 | ₹53,125 crore | 1:15 at ₹1,257 |
| Vodafone Idea | 2023 | ₹18,000+ crore | Large rights issue |
| Tata Steel | Various | Multiple | Capital needs |
| Yes Bank | 2020 | ₹15,000 crore | Reconstruction |
Should You Participate in a Rights Issue?
Consider Participating:
✅ If you believe in the company’s future
✅ If funds will be used productively (expansion, debt reduction)
✅ If the discount is attractive
✅ If management has a clear plan for proceeds
Avoid or Sell Rights:
❌ If funds are going to plug losses
❌ If company has poor governance track record
❌ If you don’t want to invest more capital
❌ If the issue is to fund speculative ventures
5. 🔄 Buyback (Share Repurchase)
What is a Buyback?
A company purchases its own shares from existing shareholders, reducing the total shares outstanding.
Company has surplus cash
↓
Decides shares are undervalued
↓
Buys back shares from shareholders
↓
Those shares are extinguished (cancelled)
↓
Remaining shareholders own a larger % of the companyTypes of Buybacks in India
1. Open Market Buyback
- Company buys from the open market over time
- Purchases happen through normal trading on exchange
- Flexible timing and quantity
- Most common type
2. Tender Offer Buyback
- Company announces fixed price and time window
- Shareholders tender (offer) their shares voluntarily
- Company pays all who tender (if within buyback size)
- Higher price than market (premium offered)
- More structured and time-bound
Buyback Example
Scenario:
Company XYZ announces buyback at ₹500 (market price: ₹450)
Maximum buyback size: 10% of paid-up capital
For Shareholders:
- Option to sell shares at ₹500 vs market ₹450
- Gain ₹50 per share premium
- Not mandatory — your choice
Effect on Company:
- Cash reduces
- Shares outstanding reduces
- EPS increases (same profit, fewer shares)
- Remaining shareholders own more per share
Why Companies Do Buybacks
✅ Return surplus cash to shareholders (alternative to dividend)
✅ Signal undervaluation: Management believes stock is cheap
✅ Improve EPS: Fewer shares = higher earnings per share
✅ Tax efficiency: Historically more tax-efficient than dividends
✅ Prevent hostile takeovers: Reduces floating shares
✅ Boost share price: Demand increases from buyback
Buyback Tax (Post 2024 Budget)
Important change: As of July 2024 Budget —
- Buyback proceeds now taxed in the shareholder’s hands (like dividend)
- Earlier: Company paid 20% buyback tax
- This reduced the tax advantage buybacks had over dividends
Always verify the latest tax rules before participating.
Buyback vs Dividend
| Feature | Buyback | Dividend |
|---|---|---|
| Cash flow | Shareholders who sell get cash | All shareholders get cash |
| Choice | Voluntary — can choose not to participate | Automatic for all |
| Frequency | Usually one-time or periodic | Often regular (annual/semi-annual) |
| EPS Impact | Increases EPS | No impact on EPS |
| Signal | Stock is undervalued | Company is profitable |
| Tax (2024) | Taxed at slab in shareholder hands | Taxed at slab |
Famous Buybacks in India
| Company | Year | Amount |
|---|---|---|
| TCS | Multiple years | ₹18,000 - ₹43,000 crore each |
| Infosys | Multiple years | ₹9,200 - ₹20,000 crore |
| Wipro | Multiple years | Regular large buybacks |
| HCL Technologies | Multiple years | ₹2,000 - ₹4,000 crore |
IT companies are the biggest buyback participants in India due to large cash reserves.
6. 🔀 Merger & Acquisition (M&A)
What is a Merger?
Two companies combine to form a single entity.
Company A + Company B → Company C (New merged entity)
OR
Company A + Company B → Company A (B absorbed into A)What is an Acquisition?
One company takes over another company.
Company A acquires Company B
→ Company B ceases to exist as separate listed entity
→ Company A continues (may rename or restructure)
→ B's shareholders get A's shares or cashTypes of Mergers
1. Horizontal Merger
Same industry, competing companies combine
Example: HDFC + HDFC Bank merger (2023)
2. Vertical Merger
Company merges with supplier or distributor
Example: Reliance acquiring its supply chain companies
3. Conglomerate Merger
Different industries combine
Example: A pharma company acquiring an IT firm
4. Reverse Merger
Smaller company acquires larger company (to gain listing status)
Common in India for getting public company status
Impact on Shareholders
When your company merges:
Shareholders of Company B (acquired):
↓
Receive either:
→ Shares of Company A (swap ratio announced)
→ Cash (buyout at premium)
→ Combination of shares + cashShare Swap Ratio Example:
HDFC + HDFC Bank Merger (2023):
- For every 42 shares of HDFC Ltd, shareholders received 25 shares of HDFC Bank
- Ratio: 25:42
- Shareholders became HDFC Bank shareholders
Open Offer (Takeover Code)
When any acquirer buys 25% or more of a company, SEBI mandates an Open Offer to remaining public shareholders:
- Acquirer must offer to buy additional 26% from public shareholders
- At a fair price (calculated as per SEBI’s Takeover Code)
- Shareholders can choose to tender (sell) or remain
- Protects minority shareholders
When triggered:
- Acquisition crosses 25% threshold
- Indirect acquisition
- Change of control of the company
Famous M&A in India
| Deal | Year | Value | Type |
|---|---|---|---|
| HDFC + HDFC Bank | 2023 | ₹40,000+ crore | Reverse merger |
| Vodafone + Idea | 2018 | Massive | Horizontal merger |
| Tata-Corus (Tata Steel) | 2007 | $12 billion | Cross-border acquisition |
| Flipkart-Walmart | 2018 | $16 billion | Acquisition |
| Zomato-Blinkit | 2022 | ₹4,447 crore | Acquisition |
7. 🏗️ Demerger (Spin-off)
What is a Demerger?
The opposite of a merger — a company splits off part of its business into a separate listed entity.
Company A (Parent)
↓
Separates Division B
↓
New Company B listed separately
↓
Existing Company A shareholders receive shares in Company BWhy Companies Demerge
✅ Unlock value: Hidden businesses get independent valuation
✅ Focus: Each entity focuses on its core business
✅ Attract different investors: Each business type attracts different investor profiles
✅ Reduce conglomerate discount: Market values focused companies higher
✅ Management accountability: Separate P&L for each business
Impact on Shareholders
- You hold Company A shares
- Post-demerger: You hold both Company A shares AND newly listed Company B shares
- Total economic value should be approximately same (or more if value unlocked)
Famous Demergers in India
| Parent Company | Demerged Entity | Year |
|---|---|---|
| Reliance Industries | Jio Financial Services | 2023 |
| L&T | L&T Finance Holdings | 2011 |
| Bajaj Auto | Bajaj Finance, Bajaj Finserv | 2008 |
| ITC | (No major demerger yet, but often discussed) | — |
| ONGC | ONGC Petro-additions | Various |
Bajaj Group Demerger Story:
- Original Bajaj Auto split into 3 companies in 2008
- Bajaj Auto (vehicles), Bajaj Finance (financial services), Bajaj Finserv (holding)
- All three created enormous shareholder value independently
- Long-term investors who held through all demergers were richly rewarded
8. 📋 Scheme of Arrangement
A broad category under the Companies Act that allows various corporate restructuring activities:
Types of Schemes
1. Capital Reduction
- Company reduces its paid-up capital
- Useful when accumulated losses exceed capital
- Shareholder approval required
2. Amalgamation
- Formal merger under court supervision
- NCLT (National Company Law Tribunal) approval needed
- Binding on all shareholders once approved
3. Reconstruction
- Complete restructuring of the company
- May involve all of the above
9. 🏛️ Initial Public Offering (IPO)
What is an IPO?
The first time a private company offers its shares to the public by listing on a stock exchange.
Private Company (not listed)
↓
Decides to go public
↓
Appoints Investment Bankers
↓
Files DRHP (Draft Red Herring Prospectus) with SEBI
↓
SEBI reviews and approves
↓
Roadshows — company presents to institutional investors
↓
Price Band announced (e.g., ₹450 - ₹475 per share)
↓
IPO open for subscription (3 days)
↓
Allotment to investors
↓
Listing on Stock ExchangeIPO Components
Fresh Issue:
- Company issues new shares
- Money goes to the company
- Used for expansion, debt repayment, working capital
Offer for Sale (OFS):
- Existing shareholders (promoters, PE funds) sell their shares
- Money goes to selling shareholders, NOT to the company
- Company’s financials unchanged
Most IPOs are a mix of both.
IPO Categories
QIB (Qualified Institutional Buyers) — 50% reserved:
- Mutual funds, insurance companies, banks, FPIs
- Must bid on Book Building route
- No refund if shares not allotted
NII/HNI (Non-Institutional Investors) — 15% reserved:
- Individuals applying for > ₹2 lakh
- Higher probability of allotment for large applications
- No limit on application amount
Retail Individual Investors (RII) — 35% reserved:
- Individuals applying up to ₹2 lakh
- Minimum 35% reserved for retail
- Lottery-based allotment if oversubscribed
Subscription and Allotment
Oversubscription Example:
IPO Size: 1 crore shares
Applications received: 50 crore share applications
Oversubscription: 50x
For retail investors:
→ Lottery system determines who gets allotment
→ Minimum lot size allotted or nothingAllotment Basis:
- If undersubscribed → All applicants get full allotment
- If oversubscribed (retail):
- If applications < 50 lakh lots: All get minimum allotment (lottery for rest)
- If applications > 50 lakh lots: Lottery for minimum lot
IPO Timeline (2025)
Day 0: IPO Closes
Day 1-5: Processing and allotment
Day 6: Allotment finalised (T+6)
Day 7: Listing on exchange (T+7 from closing)SEBI reduced IPO listing timeline from T+6 to T+3 (effective 2023) for mainboard IPOs
Reading IPO Grey Market Premium (GMP)
GMP = Grey Market Premium = Unofficial pre-listing price in informal markets
IPO Price: ₹300
GMP: +₹80
Expected Listing: ₹300 + ₹80 = ₹380 (approx 27% listing gain)Caution: GMP is unofficial, unregulated, and not always accurate. Use as indicator, not guarantee.
SME IPOs vs Mainboard IPOs
| Feature | SME IPO | Mainboard IPO |
|---|---|---|
| Exchange Platform | NSE Emerge / BSE SME | NSE Main / BSE Main |
| Minimum Application | Higher (1 lot = large value) | ₹15,000 approx |
| Company Size | Small and medium | Large |
| SEBI Scrutiny | Lower | Higher |
| Liquidity Post Listing | Lower | Higher |
| Risk | Higher | Relatively lower |
10. 📈 Follow-on Public Offering (FPO)
What is an FPO?
A second or subsequent offering of shares by an already-listed company to raise additional capital.
Difference from IPO:
- Company is already listed (not first time)
- Existing shareholders know the company
- Price typically at discount to market price
Types:
- Dilutive FPO: New shares issued → Existing shareholders diluted
- Non-dilutive FPO: Existing major shareholders sell → No new shares
Recent FPO Example:
- Adani Enterprises FPO (2023): ₹20,000 crore raise
- LIC (Life Insurance Corporation): Post-listing FPO
11. 🗑️ Delisting
What is Delisting?
A company’s shares are removed from the stock exchange — it ceases to be publicly traded.
Types of Delisting
1. Voluntary Delisting
- Promoters decide to take the company private
- Must follow SEBI’s Delisting Regulations
- Shareholders get exit opportunity at discovered price
Reverse Book Building Process:
Promoter announces intention to delist
↓
Floor price announced (minimum price)
↓
Public shareholders tender shares at their price
↓
Price at which 90% of public shares are tendered = Exit Price
↓
If promoter accepts → Delisting successful
If promoter rejects → Process fails, company stays listed2. Compulsory Delisting
- Exchange forces delisting due to non-compliance
- Company fails to meet listing requirements
- Minimum public shareholding not maintained
- Financial fraud or regulatory violations
3. Delisting Due to Merger
- Target company delists after merger
- Shareholders receive acquirer’s shares or cash
What Happens to Your Shares if Company Delists?
Voluntary Delisting:
- Compulsory exit window of 12 months after delisting
- Promoter must buy your shares at exit price
- Don’t panic — you have a guaranteed exit option
Compulsory Delisting:
- More complex, may need to approach exchanges
- Can sell in special trading windows provided by exchange
Famous Delistings in India
| Company | Year | Type | Exit Price |
|---|---|---|---|
| Vedanta Ltd | 2020 | Voluntary (failed) | ₹87.5 (failed at 90%) |
| Hexaware Technologies | 2020 | Voluntary (successful) | ₹475 |
| Burger King India | Ongoing | — | — |
| MphasiS | 2016 | Voluntary | — |
12. 🏷️ Offer for Sale (OFS)
What is an OFS?
A mechanism for large shareholders (promoters, PE funds) to sell their existing stake through the stock exchange — without a full public offering process.
Simpler and faster than an FPO.
Promoter wants to sell 5% stake
↓
Announces OFS (price + quantity)
↓
OFS opens for 1-2 days on exchange
↓
Investors bid at or above floor price
↓
Shares allocated to bidders
↓
Money goes to seller (not company)OFS Characteristics
✅ Quick process — 1-2 trading days
✅ Usually at discount to market price (floor price set below CMP)
✅ Separate reserved quota for retail investors
✅ T+1 settlement
✅ Used extensively by government to divest PSU stakes
Government OFS (Divestment)
The Indian government regularly uses OFS to sell its stake in PSU companies:
- Coal India, ONGC, NTPC, Power Grid — government OFS regularly
- Raises revenue for fiscal management
- Increases public float in PSUs
- Often creates buying opportunity
13. 🔖 Qualified Institutional Placement (QIP)
What is a QIP?
A fund-raising mechanism where a listed company issues fresh shares exclusively to institutional investors (mutual funds, FPIs, insurance companies, banks).
Why QIP?
- Faster than FPO (no SEBI approval needed for QIP)
- Can complete in days vs months for FPO
- Lower cost
- Less disclosure requirements
Requirements:
- Company must be listed for at least 1 year
- Minimum issue price = Average of last 2 weeks’ price (with adjustments)
- Shares can’t be sold for 1 year by QIP investors
Impact on Existing Shareholders:
- Fresh shares issued → dilution of existing shareholders
- Usually done when company needs fast capital (growth or distress)
14. 💡 Employee Stock Options (ESOP) / ESPP
ESOP (Employee Stock Option Plan)
Companies grant employees the right to buy company shares at a predetermined price (exercise price) after a vesting period.
Grant Date: Employee given options at ₹100 strike price
↓
Vesting Period: 3 years (typically)
↓
Exercise Period: Employee can buy shares at ₹100
(Market price now ₹300)
↓
Profit per share = ₹300 - ₹100 = ₹200Impact on existing shareholders:
- New shares issued when options exercised
- Dilution of existing shareholders
- Companies must disclose ESOP pools in annual reports
ESOP impact on EPS:
- Diluted EPS = Profit / (Existing shares + ESOP shares)
- Always check diluted EPS, not just basic EPS
15. 📊 Preferential Allotment
What is it?
Issuing shares or warrants to specific identified investors (promoters, strategic partners, institutions) at an agreed price.
Not offered to public at large.
Used for:
- Promoter increasing stake
- Strategic investor coming on board
- PE/VC fund investing
- Quick capital raising for specific purpose
SEBI Regulations:
- Price must be at least average of last 26 weeks (or 2 weeks — whichever is higher)
- Cannot sell allotted shares for 6 months (promoters: 3 years)
📅 Corporate Action Calendar: How to Track
Where to Find Upcoming Corporate Actions
NSE (nseindia.com):
- Listed Company → Corporate Actions
- Filter by action type and date range
BSE (bseindia.com):
- Corporates → Corporate Actions
- Complete action history and upcoming events
Broker Apps:
- Most show corporate actions for your portfolio holdings
- Push notifications for your stocks
Moneycontrol / Economic Times:
- Corporate Action Calendar sections
- Breaking news on major announcements
Screener.in:
- Company-wise complete corporate action history
- Dividend history, bonus history, split history
🔔 How Corporate Actions Affect Your Portfolio
Automatic vs Manual Actions
Actions that happen AUTOMATICALLY (no action needed):
- Dividend credited to bank
- Bonus shares credited to demat
- Stock split adjustment in demat
- Demerger shares credited to demat
- Merger share swap (post-approval)
Actions that REQUIRE your participation:
- Rights Issue: Apply or sell RE before deadline
- Buyback Tender Offer: Submit shares if you want to participate
- OFS: Bid if you want to buy
- Open Offer: Submit shares if you want to sell
⚠️ Key Risks in Corporate Actions
Dilution Risk
When companies issue new shares (QIP, FPO, Rights Issue, Preferential), your percentage ownership decreases.
Before: You own 1% of 100 crore shares = 1 crore shares (1%)
After QIP: Company issues 20 crore new shares (total = 120 crore)
Your holding: 1 crore / 120 crore = 0.83%
You've been diluted from 1% to 0.83%Mitigate by: Participating in rights issues to maintain your percentage.
Value Destruction Risk (M&A)
Not all mergers create value. Studies show ~50% of mergers destroy value for the acquiring company.
Red flags:
- Overpaying for target company (goodwill impairment risk)
- Weak strategic rationale
- Poor integration planning
- Cultural mismatch
Corporate Governance Risk
Some corporate actions can harm minority shareholders:
❌ Related party transactions: Company buys from promoter’s company at inflated price
❌ Preferential allotment at wrong price: Promoters get cheap shares
❌ Unnecessary dilutive QIPs: When company doesn’t need capital
❌ Reverse mergers to list shell companies
Protection: Read annual reports, monitor SEBI orders, follow independent analyst coverage.
🧾 Tax Implications of Corporate Actions
Summary Table
| Corporate Action | Tax Treatment |
|---|---|
| Dividend | Taxed at income slab rate |
| Bonus Shares | No tax on receipt; acquisition cost = ₹0 |
| Stock Split | No tax; cost adjusted proportionally |
| Rights Issue | No tax on receipt; cost = issue price paid |
| Buyback (post 2024) | Taxed at slab rate in shareholder’s hands |
| Merger Share Swap | Exempt from tax (Sec 47 of Income Tax Act) |
| IPO/FPO Listing Gains | Short-term or Long-term capital gain tax |
| Delisting exit | Capital gain tax (LTCG or STCG) |
Bonus Share Tax Trap
Important: Bonus shares have zero cost of acquisition.
When you sell bonus shares:
Sale Price = ₹200 (per bonus share)
Cost = ₹0 (bonus shares are free)
Taxable Gain = ₹200 per share (entire sale proceeds!)
LTCG: 12.5% if held > 1 year (post July 2024 budget)
STCG: 20% if held < 1 yearContrast with original shares:
- Original share bought at ₹50, sold at ₹200
- Taxable gain = ₹200 − ₹50 = ₹150 per share (not ₹200)
📋 Checklist: What to Do When a Corporate Action is Announced
For Dividend
✅ Note ex-date and payment date
✅ Buy before ex-date if not already holding
✅ Submit 15G/15H if applicable to avoid TDS
✅ Check bank account on payment date
✅ Track for ITR filing
For Bonus/Split
✅ Note record date
✅ Buy before record date if you want to participate
✅ Wait for automatic credit to demat
✅ Update cost of acquisition in records
For Rights Issue
✅ Note issue open and close dates
✅ Decide: Apply, Sell RE, or Ignore
✅ If applying: Transfer funds to trading account
✅ Apply before close date
✅ Track allotment
For Buyback (Tender)
✅ Note offer price vs market price
✅ Decide: Tender shares or hold
✅ Submit via broker before deadline if tendering
✅ Track acceptance ratio
For IPO
✅ Read DRHP/Prospectus (especially risk factors)
✅ Analyse financials and valuation
✅ Decide application amount
✅ Apply before close date via UPI/ASBA
✅ Check allotment status on allotment date
For Merger/Demerger
✅ Understand the swap ratio
✅ Vote in shareholder meeting if required
✅ Wait for shares to be credited automatically
✅ Update portfolio records
🌟 Key Takeaways
✨ Corporate actions are company events that directly impact your shares and wealth
✨ Mandatory actions (bonus, split, dividend) happen automatically — no action needed
✨ Voluntary actions (rights, buyback, OFS) require your conscious decision
✨ Ex-dates matter — always check before buying for specific actions
✨ M&A can unlock value or destroy it — analyse carefully before reacting
✨ IPOs require careful evaluation — not all listing gains are guaranteed
✨ Dilution from QIP/FPO/Rights can reduce your ownership percentage
✨ Tax implications vary significantly across different corporate actions
✨ SEBI protects minority shareholders through open offer regulations
✨ Track corporate actions using NSE/BSE websites or broker apps
🎯 Action Steps
- Set up alerts on your broker app for corporate actions on your holdings
- Read board meeting announcements — they signal upcoming actions
- Never miss a rights issue deadline — check your broker notifications
- Keep a corporate action diary for tax purposes
- Read the fine print of every merger/demerger announcement
- Don’t panic on ex-dates when price adjusts — it’s normal
- Check SEBI orders before participating in related-party transactions
“The most important thing to do if you find yourself in a hole is to stop digging.”
— Warren Buffett (on bad corporate decisions)
“Price is what you pay. Value is what you get.”
— Warren Buffett (relevant when evaluating any corporate action)
🏢 Corporate actions are the moments when companies show their true character.
The best investors understand not just what a company does every day — but what it does at its most critical moments of decision.
⚠️ DISCLAIMER: Wealth Kite is an Educational Resource. Not a SEBI Registered Investment Advisor. Investments in securities market are subject to market risks.