What is a Stock Split?

Stock Split is a corporate action wherein a company splits existing shares into multiple shares to boost liquidity. The primary motive of a stock split is to increase liquidity and make shares more affordable to small investors.

To understand this better, in a 2-for-1 stock split, a new share is issued for every share held by an investor. This means that:
  • If there were 1 crore outstanding shares, there will be 2 crore shares post-split. 
  • The stock price gets halved (falls to the extent of the split).
  • The face value of shares changes with respect to the split ratio (unlike bonus issues where the face value is unaffected).
  • Existing shareholders will have the same amount of money invested, and will own more shares as a result of the split.

Important dates during a Stock Split: 

For example, the IRCTC Board of Directors approves a 1:5 stock split on 12th August and related dates are announced. That is, every share with the current face value as Rs. 10 will be split into 5 shares of face value Rs. 2. If Mr Jomon holds 200 IRCTC shares, he will hold 1000 shares post-split.

Declaration Date: 12th Aug
The day the stock split is announced to the public.
Ex-date: 28th Oct
To be eligible to receive shares as part of the split, purchases must be made on or before 27th Dec.
Record Date: 28th Oct 
All shareholders of IRCTC as per company records on 28th Oct will receive split shares.
Credit Date
The day the split shares reflect in the demat accounts of eligible investors. 

Since we have shifted to the T+1 settlement cycle, the ex-date and record date for corporate actions fall on the same day.

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