What is Stock Split? And how to Calculate it? | Investing 101 | Edelweiss Wealth Management

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Remember the time when you were a kid and your mum asked you to split something with your sibling, didn’t seem like a perk right? But as an investor splitting of stocks among other investors, might not be so bad for you. Let us find out more about it!

What is stock split or share split?

A stock split or a share split is basically a company dividing it's existing shares to boost liquidity of shares amongst it's investors. Although the number of shares held by an investors increases, the total market value of the shares remains the same.

Stock Split Meaning: Stock splits are a way by which the board of directors of a company can increase the number of shares outstanding while decreasing the share price. The share split done by companies is basically a tactic for making a stock available to smaller investors, particularly when the stocks are trading at an all-time high.

In a stock split, neither the value of your company nor does the value of your investment change, it is important to know what kind of an impact a stock split can have on your portfolio.

Example to calculate stock split: If initially an investor has 10 shares of a company worth Rs. 100/per share. After a 1:1 stock split, he will now how 20 shares worth Rs.50/per share. So basically, if the number of shares increases, the share price will decrease by a proportional amount.

Hence it is clearly seen that while the number of shares held by an investor increases the total value of the shares owned by the investor remains the same. Thus a stock split allows you to own more shares, but there is no additional value added. Despite this it is seen that investors generally react positively to stock splits, because a company announcing a share split generally aims to attract more investors. This can also result in your portfolio seeing a handsome benefit if the stock market continues to appreciate.

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