Difference between the Ex-date and Record date in Stock Markets

Many Investors end up goofing either their dividends or bonus etc as they only focus on trading without paying any attention to the corporate announcements of the company. Else they are not aware of the Ex-date and Record date in the stock markets and thus goofs up on tax fewer benefits like dividends or bonuses etc.

So let us understand with the example of a bonus as a corporate action to understand the difference between the ex-date and record date in a stock market.

Table of Contents
Corporate action and its Effects
Ex-date and Record date cum bonus date
Who is eligible for bonus share?
Effect on Share price
Key Takeaways

Corporate action and its Effects:

Bonus share is fully paid up additional share that is issued to the existing shareholder of the company without any additional cost, based upon the number of shares that a shareholder owns.

Bonus shares are issued by companies to capitalize on their free reserves. They share their retained earnings with their shareholders in the absence of any CAPEX or expansion in the near future.

Bonus issue of shares reduces the EPS of the company.

Bonus issue increases the Paid-up share capital and reduces the reserve and surplus (retained earnings) of the company.

Bonus share is issued to each shareholder according to their stake in the company.

For example: when a company offers 1:4 bonus shares, it means a shareholder will get 1 free share for 4 shares held. So if an investor holds 100 shares at the time of bonus then they will become 125 shares after ex-bonus.

Ex-date and Record date cum bonus date

To determine whether you get the bonus share or not, you need to look at two important dates. They are the ex-date and record date.

The record date is the date set by the company under which the investor must own shares by that date, to be eligible for a bonus announced by the company.

All the investors holding the share on the record date are eligible to get a bonus share of the company.

Learn the essential Feature of Trading – Basics of Financial Market

After the announcement of the bonus but before the record date, the shares are referred to as “Cum bonus.”

The Ex-date is usually set one business day prior to the record date as we follow T+2 days as our trading cycle.

Who is eligible for bonus share?

India follows the T+2 rolling settlement for the delivery of shares.

Shares must be bought before the Ex-date because, if you purchase the share on the Ex-date, then it will not be credited to your Demat account on the record date and therefore, you will not be eligible for the bonus share but the person who sold the share to you will be eligible for the same.

Also Read: Stock Split v/s Bonus

This holds true for all kinds of corporate actions be it rights, stock split, or dividends.

Here is an example of Relaxo Footwear:

Now if you purchase the share on the Ex-date i.e. 26/6/2019, the share will not be credited to your account by the record date because of T+2 Settlement. Thus you have to purchase one day before the Ex-date i.e. 25/06/2019.

If 25/06/2019 happens to be a non-trading day then you have to purchase it on 24/06/2019 to be eligible to receive the bonus.

Therefore, if you purchase the share one day prior to Ex-date, you get the bonus share. The bonus shares are generally credited to the shareholder’s accounts within a Period of fifteen-day from the record date.

Also Read: Corporate Action – Is it a call to action for a Shareholder?

Effect on Share price:

The share price of the company falls in the same proportion as the bonus share issues. So, in a 1:4 bonus issue, the share valuation price generally falls by 25% on the day of the Ex-date.

Frequently Asked Questions

Key Takeaways:

• Knowledge of both Ex-date and record date is important to undertake the right trades.
• Ascertaining to receive any Bonus rights and Dividends is effected on the Ex-date.
• One can sell the share after the Record date thus does not make the mistake of selling the share after the Ex-date only.