Definition
Cum-Bonus / Ex-Bonus
Cum-bonus and ex-bonus indicate whether a stock still carries the right to an announced bonus issue or has already adjusted for it.
Before the ex-date of a bonus issue, the stock trades cum-bonus, buyers are entitled to the free bonus shares. On the ex-date it goes ex-bonus, and the price drops proportionately (e.g., a 1:1 bonus roughly halves the price) since the new buyer won't receive the bonus.
The price fall on the ex-date is purely a mechanical adjustment, not a real loss, your total value stays the same with more shares at a lower price. Understanding this prevents panic when a stock 'crashes' on the ex-bonus date.
Related terms
- Ex-DateThe ex-date is the cut-off day from which a stock trades without the right to an upcoming corporate action like a dividend, bonus, or split.
- Cum-DateCum-date refers to the period when a stock still trades 'with' the right to an upcoming dividend or corporate benefit.
- Bonus IssueA bonus issue is the free allotment of additional shares to existing shareholders, funded out of reserves, in proportion to their holdings.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.