SHARETIPSINFO >> Articles Directory >> Stock Splits In Stock market
Stock split is a process through which a company increases its number of shares. In most cases one share is divided into two. As a result of the stock split the price of the share comes down. From a shareholders point of view the price of the total holding remains the same. For example if you are holding 100 shares of a company at price of Rs.100 each, after the stock split you will have 200 shares of the company of a value of Rs. 50 each. So, the total amount of share holding remains the same only the number of share and price of the share changes as a result of the stock split.
The decision of the stock split is taken by the board of directors. Generally the stock split is announced when the company feels that the price of its share has gone out of reach for most of the investors. The stock split reduces the price of the stocks that eventually attracts more buyers that helps the stock to rise in price again. Stock split is typically done to increase the volume of trade in the stock market.
Though theoretically stock spit is not a direct gain for the shareholders, in reality it is profitable from an investor’s point of view. Actually a stock split brings momentum to a stock that was not at all moving at the stock market. Once a stock split takes place the price of the stock is sure to rise that actually increases the profit of the share holders. When a company announces stock split it is assumed that the company is growing and will expand in the future that actually boosts the confidence of the investors. This results in the buying of the stock that rise the price of the stock. There are investors who keep track of the companies that is about to split its stocks and buy those stocks to gain from the split.
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