What is a Stock Split?

A stock split is a corporate action in which a company increases the number of its outstanding shares by reducing the face value of each share. However, the total market capitalization of the company and the overall value of shareholders’ investments remain unchanged.

Companies usually undertake stock splits to adjust the price range of their shares and improve liquidity. By reducing the share price, the stock becomes more affordable and attractive to a larger number of investors, which can lead to increased trading activity.

When a stock split takes place, the face value of each share decreases, while the number of shares held by investors increases in the same proportion. Despite this change, the total value of the investment remains the same.

For example, in a 5:1 stock split, a share with a face value of ₹10 is divided into five shares with a face value of ₹2 each. If an investor holds 1,000 shares before the split, they will hold 5,000 shares after the split.

The overall investment value does not change. For instance, before the split, 1,000 shares at ₹50 each amount to ₹50,000. After the split, 5,000 shares at ₹10 each will still total ₹50,000.

After the stock split, the share price automatically adjusts in the market based on the increased number of shares and the reduced face value. The additional shares are generally credited to the investor’s demat account within two business days.