Important Things About Share Split
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A share split is one of the Corporate Exercises that multiplies the number of shares in a company according to a predetermined ratio.
It also causes shareholders'' holdings to increase based on the ratio announced by the company.
For example, the counter MYTECH announced a share split of 5:1 last November. This means every 1 unit of shares will be split into 5 units in the shareholder''s portfolio.
In this article, we will explain several important things about Share Splits that you need to know and understand so that you will no longer be confused if any of your stock holdings announce a share split.
1- The number of shares multiplies
2- The current share price decreases (Adjusted Price)
After a share split occurs, the share price will drop because the purpose is to attract retail investors to invest at an affordable price.
3- Does not change the total market capitalisation
Market Capitalisation = Total Shares X Share Price
Although a share split increases the total number of shares, it does not change the company''s market capitalisation.
As mentioned earlier, the purpose of a share split is to lower the share price.
This is to attract more investors, especially retail investors, to buy the company''s shares.
1- More shares become available in the market
2- Greater liquidity (easier to trade)
3- The price per unit of shares becomes lower
This is the last day to be eligible for the share split. For example, if the Ex-Date is 3 November, then you must buy at least one day before the Ex-Date.
If you sell on the Ex-Date itself, there is no issue — you are still eligible for the share split.
Example with Ex-Date of 3 November:
This depends on the company based on their announcement. For example, MYTECH earlier had a ratio of 5:1.
So every 1 unit of shares will be split into 5 units.
The shareholder''s total number of shares will increase. For example, if you hold 100 units with a share split ratio of 5:1, it will become 500 units after the split.
As mentioned earlier, the share price will drop because the purpose of a Share Split is to attract more retail investors to invest at an affordable price.
1- The number of shares increases
2- The share price drops (adjusted price)
3- After the drop, the share price ''usually'' recovers
When a share price becomes lower, more people have the opportunity to buy it because the trading price becomes affordable, especially for average investors.
Typically, companies that carry out share splits have strong fundamentals. After the adjusted price, the share price will rise again.
A share split is a process where a company multiplies the number of shares according to a specific ratio. For example, a 1:2 share split means every 1 share becomes 2 shares.
No, the total value of your investment remains the same. Although the share price drops (adjusted price), the number of your shares increases according to the split ratio.
Companies carry out share splits to make share prices more affordable so that more investors have the opportunity to buy. Typically, companies with strong fundamentals will carry out share splits.
You can check the news/announcement section in your portfolio. The symbol X* will appear next to the share name one week before the Ex-Date as an indicator that the Corporate Exercise is approaching.
A share split is one of the important Corporate Exercises that every investor should understand. Make sure you always monitor your portfolio and check share announcements to stay informed of any changes.
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