{"id":5595,"date":"2024-06-03T12:42:55","date_gmt":"2024-06-03T12:42:55","guid":{"rendered":"https:\/\/wp-api.pocketful.in\/blog\/?p=5595"},"modified":"2025-03-12T07:01:30","modified_gmt":"2025-03-12T07:01:30","slug":"stock-splits","status":"publish","type":"post","link":"https:\/\/wp-api.pocketful.in\/blog\/stock-splits\/","title":{"rendered":"What are Stock Splits? Meaning, Reason, Types, and Impact Explained"},"content":{"rendered":"\n<p>Stock split is a unique corporate action in which the shareholder\u2019s shares get divided into multiple shares. While the overall value of the shares remains the same, the shares increase in number.<\/p>\n\n\n\n<p>But what exactly is a stock split, and why does it matter to investors in India? This blog will answer all your questions regarding stock split.&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/wp-api.pocketful.in\/blog\/stock-splits\/#Stock_Splits_Meaning\" title=\"Stock Splits Meaning\">Stock Splits Meaning<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/wp-api.pocketful.in\/blog\/stock-splits\/#Reason_for_Stock_Splits\" title=\"Reason for Stock Splits\">Reason for Stock Splits<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/wp-api.pocketful.in\/blog\/stock-splits\/#Types_of_Stock_Splits\" title=\"Types of Stock Splits\">Types of Stock Splits<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/wp-api.pocketful.in\/blog\/stock-splits\/#Psychological_Impact_of_Stock_Split\" title=\"Psychological Impact of Stock Split\">Psychological Impact of Stock Split<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/wp-api.pocketful.in\/blog\/stock-splits\/#Calculations_of_a_Stock_Split\" title=\"Calculations of a Stock Split\">Calculations of a Stock Split<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/wp-api.pocketful.in\/blog\/stock-splits\/#Pros_and_Cons_of_Stock_Splits\" title=\"Pros and Cons of Stock Splits\">Pros and Cons of Stock Splits<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/wp-api.pocketful.in\/blog\/stock-splits\/#How_can_I_track_Stock_Splits\" title=\"How can I track Stock Splits?\">How can I track Stock Splits?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/wp-api.pocketful.in\/blog\/stock-splits\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/wp-api.pocketful.in\/blog\/stock-splits\/#Frequently_Asked_Questions_FAQs\" title=\"Frequently Asked Questions (FAQs)\">Frequently Asked Questions (FAQs)<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"h-stock-splits-meaning\"><span class=\"ez-toc-section\" id=\"Stock_Splits_Meaning\"><\/span>Stock Splits Meaning<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"1024\" src=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Marketing-consulting-bro.png\" alt=\"Meaning of Stock Split\" class=\"wp-image-5612\" style=\"aspect-ratio:1.3333333333333333;object-fit:cover;width:472px;height:auto\" srcset=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Marketing-consulting-bro-1024x1024.png 1024w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Marketing-consulting-bro-300x300.png 300w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Marketing-consulting-bro-150x150.png 150w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Marketing-consulting-bro-768x768.png 768w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Marketing-consulting-bro-1536x1536.png 1536w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Marketing-consulting-bro-96x96.png 96w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Marketing-consulting-bro.png 2000w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>A stock split is when a company divides its existing shares into multiple shares. However, the total market value of the company doesn&#8217;t change, even though the number of shares increases.&nbsp;<\/p>\n\n\n\n<p>You can imagine cutting a piece of pie into smaller portions \u2014 while the number of pieces increases, the total amount of pie remains the same. This move is generally done to make individual shares more affordable and attract a wider range of investors who were unable to enter due to the high price point.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-reason-for-stock-splits\"><span class=\"ez-toc-section\" id=\"Reason_for_Stock_Splits\"><\/span>Reason for Stock Splits<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Companies make use of stock splits to make their shares more appealing and accessible to investors. When a company&#8217;s share price shoots up drastically, it can discourage small scale investors from buying. Therefore, by splitting the stock, companies lower the price per share, making it more affordable and thus increasing liquidity.<\/p>\n\n\n\n<p>For example, imagine a company&#8217;s share price has increased to \u20b910,000. Many retail investors might find it too expensive to invest. However, if the company announces a 10-for-1 stock split, each share&#8217;s price would drop to \u20b91,000, making it more attainable for a larger audience.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-types-of-stock-splits\"><span class=\"ez-toc-section\" id=\"Types_of_Stock_Splits\"><\/span>Types of Stock Splits<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"1024\" src=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Report-pana.png\" alt=\"Types of Stock Splits\" class=\"wp-image-5613\" style=\"aspect-ratio:1.3333333333333333;object-fit:cover;width:421px;height:auto\" srcset=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Report-pana-1024x1024.png 1024w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Report-pana-300x300.png 300w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Report-pana-150x150.png 150w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Report-pana-768x768.png 768w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Report-pana-1536x1536.png 1536w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Report-pana-96x96.png 96w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Report-pana.png 2000w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>There are broadly two types of stock splits. They are explained below:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Forward Stock Split &#8211; <\/strong>This is the most common type of split, where the number of shares increases and the price per share decreases. For instance, in a 2-for-1 split, each existing share splits into two, doubling the number of shares and cutting the price per share in half.<\/li>\n\n\n\n<li><strong>Reverse Stock Split &#8211; <\/strong>This type is relatively less common, it involves reducing the number of shares, which in turn increases the price per share. For example, in a 1-for-5 reverse split, five shares are consolidated into one, making the price of each share five times higher.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-psychological-impact-of-stock-split\"><span class=\"ez-toc-section\" id=\"Psychological_Impact_of_Stock_Split\"><\/span>Psychological Impact of Stock Split<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Stock splits can have a significant psychological impact on investors. When a company announces a stock split, it creates a perception of growth and confidence in the company&#8217;s future. This perception is largely based on the idea that the company seeks the trust of retail investors.&nbsp;<\/p>\n\n\n\n<p>This positive sentiment can drive up demand for the stock, sometimes leading to an increase in the stock price post-split, even though the overall market value of the company remains unchanged.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-calculations-of-a-stock-split\"><span class=\"ez-toc-section\" id=\"Calculations_of_a_Stock_Split\"><\/span>Calculations of a Stock Split<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"1024\" src=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Calculator-bro.png\" alt=\"Calculation of a Stock Split\" class=\"wp-image-5614\" style=\"width:368px;height:auto\" srcset=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Calculator-bro-1024x1024.png 1024w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Calculator-bro-300x300.png 300w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Calculator-bro-150x150.png 150w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Calculator-bro-768x768.png 768w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Calculator-bro-1536x1536.png 1536w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Calculator-bro-96x96.png 96w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Calculator-bro.png 2000w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>Let&#8217;s break down the calculation with an example. Suppose you own 100 shares of a company, XYZ Limited, with each share priced at \u20b9500. Your total investment is \u20b950,000 (100 shares x \u20b9500).&nbsp;<\/p>\n\n\n\n<p>XYZ Limited then announces a 2-for-1 stock split. After the split, you will own 200 shares, but the price per share will be halved to \u20b9250. Thus, your total investment remains the same at \u20b950,000 (200 shares x \u20b9250).<\/p>\n\n\n\n<p>Similarly, if XYZ Limited opted for a 3-for-1 stock split, you would end up with 300 shares priced at approximately \u20b9166.67 each, maintaining the total value of your investment.<\/p>\n\n\n\n<p>The market value of the company remains the same after the stock split, thus reducing the value of each share.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-pros-and-cons-of-stock-splits\"><span class=\"ez-toc-section\" id=\"Pros_and_Cons_of_Stock_Splits\"><\/span>Pros and Cons of Stock Splits<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading has-medium-font-size\" id=\"h-pros\">Pros<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Increased Liquidity &#8211;<\/strong> More shares at a lower price can increase trading volume and liquidity.<\/li>\n\n\n\n<li><strong>Enhanced Affordability &#8211;<\/strong> Lower-priced shares are more accessible to small investors, widening the shareholder base.<\/li>\n\n\n\n<li><strong>Positive Market Perception &#8211;<\/strong> A stock split can signal that the company is performing well and expects future growth.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading has-medium-font-size\" id=\"h-cons\">Cons<\/h3>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>No Fundamental Change &#8211;<\/strong> A stock split doesn\u2019t change the company\u2019s fundamentals. It&#8217;s more of a cosmetic change without affecting the company&#8217;s market capitalization or intrinsic value.<\/li>\n\n\n\n<li><strong>Possible Volatility &#8211; <\/strong>Post-split, stocks can experience higher volatility as new investors start investing. This increase in demand can make the stock appear more valuable than it actually is.<\/li>\n<\/ol>\n\n\n\n<p><strong>Read Also<\/strong>: <a href=\"https:\/\/www.pocketful.in\/blog\/bonus-issue\/\">What is a Bonus Issue? Meaning, Process, Key Dates, and Impact Explained<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-how-can-i-track-stock-splits\"><span class=\"ez-toc-section\" id=\"How_can_I_track_Stock_Splits\"><\/span>How can I track Stock Splits?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Generally, listed companies publish all the corporate announcements at stock exchanges first, i.e., NSE and BSE in India. However, it will be cumbersome for you to monitor updates from each company individually.<\/p>\n\n\n\n<p>To simplify this process, we&#8217;ve created a dedicated corporate action page where you can effortlessly track all the latest corporate announcements, including but not limited to dividends, rights, splits, and bonus issues.<\/p>\n\n\n\n<p>You can access the <a href=\"https:\/\/www.pocketful.in\/tools\/corporate-actions\"><em>corporate actions page<\/em><\/a> to get the detailed list. <\/p>\n\n\n\n<p>But that\u2019s not all. In addition to our corporate actions page, we recently launched our new WhatsApp service. Now, you can effortlessly stay informed about all corporate actions, including dividends, bonuses, splits, and more, delivered straight to your phone every morning by 9 A.M. for just INR 11!<\/p>\n\n\n\n<p>Sign up now and <a href=\"https:\/\/pulse.pocketful.in\/corporate-actions\"><em>never miss any corporate announcement<\/em><\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-conclusion\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Stock splits play a crucial role in making shares more accessible and enhancing market liquidity. Although they don\u2019t alter a company\u2019s fundamental value, they can significantly influence investor perception and market dynamics.&nbsp;<\/p>\n\n\n\n<p>Understanding stock splits is extremely important for investors, as it equips them with the knowledge to navigate the market more effectively.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-frequently-asked-questions-faqs\"><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions_FAQs\"><\/span>Frequently Asked Questions (FAQs)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n<div class=\"saswp-faq-block-section\"><ol style=\"list-style-type:none\"><li style=\"list-style-type: none\"><h3 class=\"\">Is it mandatory for the listed companies to declare a stock split or reverse stock split once the share price reaches a certain point?<\/h3><p class=\"saswp-faq-answer-text\">No, it is entirely optional for companies. For example, MRF Ltd. has never done a stock split, and its shares are currently among the most expensive shares to purchase in the Indian share market.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">What is the key difference between Forward Stock Split and Reverse Stock Split?<\/h3><p class=\"saswp-faq-answer-text\">The key difference between the two is that a forward stock split increases the number of outstanding shares, and a reverse stock split decreases the number of outstanding shares. The total market value of the organization remains the same in both cases.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">Is there any impact on liquidity by stock split?<\/h3><p class=\"saswp-faq-answer-text\">Yes, the liquidity of the stock is increased after a stock split as it increases the number of outstanding shares of the company and decreases the price per share, making it affordable to potential investors.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">Who announces the stock split?<\/h3><p class=\"saswp-faq-answer-text\">The company\u2019s Board of Directors have the authority to announce a stock split.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">Is there any impact of a stock split on the company\u2019s fundamentals?<\/h3><p class=\"saswp-faq-answer-text\">No, there is no impact of a stock split on the company\u2019s fundamentals.<\/p><\/ul><\/div>","protected":false},"excerpt":{"rendered":"<p>Stock split is a unique corporate action in which the shareholder\u2019s shares get divided into multiple shares. While the overall value of the shares remains the same, the shares increase in number. But what exactly is a stock split, and why does it matter to investors in India? This blog will answer all your questions [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":5597,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"is_paper_insight":false,"paper_insight_image":0,"paper_insight_pdf":0,"paper_insight_ppt":0,"footnotes":""},"categories":[15],"tags":[],"class_list":["post-5595","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing"],"acf":{"freelancer":"Not Added"},"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v20.13 (Yoast SEO v21.2) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What are Stock Splits? 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