{"id":218,"date":"2020-02-05T11:39:22","date_gmt":"2020-02-05T11:39:22","guid":{"rendered":"https:\/\/www.invest19.com\/blog\/?p=218"},"modified":"2020-02-05T12:09:42","modified_gmt":"2020-02-05T12:09:42","slug":"what-is-stock-split-and-how-does-it-affects-your-investment-portfolio","status":"publish","type":"post","link":"https:\/\/www.invest19.com\/blog\/what-is-stock-split-and-how-does-it-affects-your-investment-portfolio\/","title":{"rendered":"What is Stock Split and how does it affects your Investment Portfolio?"},"content":{"rendered":"
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If you have\nbeen a regular at the stock market, then stock split may be a common phenomenon\nfor you. But even if you haven\u2019t heard much about it, you don\u2019t have to worry\nmuch as we\u2019ll let you know all there\u2019s to know about stock split. Let\u2019s find\nout more about it down below.<\/p>\n\n\n\n

What is stock split?<\/h2>\n\n\n\n

Stock split\nrefers to the process of dividing the existing shares of the company into\nmultiple shares. As the name suggests, it\u2019s about splitting the shares of the\ncompany. This is done in order to boost the liquidity of the shares although\nthe total capitalization of the company remains the same. This is a common\npractice among the companies as it helps to increase the liquidity of the\ncompany. Normally, the stocks are split in the form of 2 for 1 or 3 for 1. For\nsay, if the company has 10,000 outstanding shares and it opts for share split\nof 2 for 1, then the outstanding shares will now become 20,000. Similarly, any\nexisting shareholder who holds for say 1000 shares will now have 2000 shares\nafter the stock split. <\/p>\n\n\n\n

Why do companies perform stock split?<\/h2>\n\n\n\n

As we mentioned\nabove, the major reason why companies perform stock split is to increase the\nliquidity of the company. For say currently the price of a share is Rs 100 and\nthe company opts to split it in 2 for 1 condition that makes one share of Rs\n100 turn into 2 shares of Rs 50 each. When the stocks are split, people venture\ninto the market and trade-off the shares. This will also create a wave of\nbuying and selling which will increase the liquidity for the company. Sometimes,\nthe share prices of companies tend to be too high for the liking of the\npotential investors, so they reduce the cost of the share by splitting them. That\nmakes them accessible to invest in for any potential investor and renews the\ninterest for any investor. <\/p>\n\n\n\n

Will stock split affects your investment portfolio?<\/h2>\n\n\n\n

If you look at\nthe concept of the stock split, the market capitalization of the company\nremains the same and only the number of shares tends to increase. For say, if\nyou hold 100 shares of a company of Rs 100 each in your portfolio and the\ncompany splits its shares as 2 for 1 then now your shares will become 200\nshares of Rs 50 each. This won\u2019t change the value of the investment in your\nportfolio but will change the number of shares you\u2019re holding of that company. <\/p>\n\n\n\n

But the catch is\nwhen such stock splits occur, it is deemed that the company wants to attract\nthe investors via lowering the price of shares and making it accessible. This\nwill bring in a wave of interest and potentially make the company a top choice\nfor investors. That will bring a swell in your value of the investment in the\nlong run. In fact, if you were to trace the history then companies that have\nperformed stock split have gone onto give better returns in comparison to their\ncounterparts. <\/p>\n\n\n\n

When stock\nsplits are done, the number of stocks in your portfolio tends to increase which\nin turn may change the asset allocation in your portfolio as the equity part\nwill swell high. This is where you can take a look at your portfolio and\nrevisit the asset allocation ratio. And if you want you can rebalance it\naccordingly so that your asset allocation is in line with your investment goal.\n<\/p>\n\n\n\n

What are reverse stock splits?<\/h2>\n\n\n\n

Reverse stock\nsplit as the name suggests is the reverse of what stock split it. This is where\nthe company consolidates the shares and performs the reverse stock split. For\nsay, you hold around 1000 shares of Rs  10\neach and the company decides to perform a reverse split of 1 for 10, then your\nshares will be reduced to 100 from the initial 1000. However, the value will\nalso change from Rs 10 for each share to Rs 100 for the new share. That way\nyour valuation won\u2019t change but the number of shareholdings will change.<\/p>\n\n\n\n

Why do companies perform reverse stock\nsplit? <\/h2>\n\n\n\n

Companies tend\nto perform reverse stock split to increase the price of the stocks. Sometimes\nthe shares of the company may trade at a lower price which may create a bad\nimpression on the investors. So they end up doing a reverse stock split to help\nincrease the value of the shares and renew the interest among investors. <\/p>\n\n\n\n

Will reverse stock split affect your\nportfolio?<\/h2>\n\n\n\n

When it comes to\nreverse stock split, the market capitalization of the company remains the same\nas it is but the major change is in the number of shares. The number of shares\ntends to decrease with the reverse stock split. For say, a company had 10,000\noutstanding shares and opts for a reverse split of 1 for 10, and then the\noutstanding shares will now be only 1000. However, the share prices will\nincrease for the shares. <\/p>\n\n\n\n

There are plenty\nof companies who have gone this route and prospered after reverse stock split\nwhile some have also faltered down the line. It depends on the market\nvolatility and the size of the firm whether the reverse stock split affects\nyour portfolio or not. When the reverse stock split happens, your asset\nallocation changes course and it would be wise to have a look at your portfolio\nduring this. Take a look at your investment portfolio and see whether you need\nto rebalance it to get it in line with your initial investment goal. <\/p>\n\n\n\n

Should you invest in a market after a stock split or reverse stock split?<\/h2>\n\n\n\n

This is a question that tends to\nfloat around whenever there\u2019s a split or reverse stock split in the stock\nprices of any company. Encashing on these momentums is more about trying to\nbook quick profits which in terms of investment is not something you should aim\nfor. Investment is about seeking the best opportunity to help your wealth grow\nand it takes time. When you want to invest in the market, the best thing you\nshould do is to do the fundamental analysis and see if the stocks fit into your\ndesired criteria or not. Once you are aligned on your goals, these stock splits\nor reverse stock splits will not impact your investment ideology. See if the\ncompany is fundamentally strong or not and then you can invest in it regardless\nof stock split or reverse stock split. <\/p>\n

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If you have been a regular at the stock market, then stock split may be a common phenomenon for you. But even if you haven\u2019t […] Read More<\/a><\/span><\/p>\n","protected":false},"author":1,"featured_media":221,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[41],"class_list":["post-218","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-stock-market","tag-stock-split"],"_links":{"self":[{"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/posts\/218","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/comments?post=218"}],"version-history":[{"count":1,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/posts\/218\/revisions"}],"predecessor-version":[{"id":220,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/posts\/218\/revisions\/220"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/media\/221"}],"wp:attachment":[{"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/media?parent=218"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/categories?post=218"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.invest19.com\/blog\/wp-json\/wp\/v2\/tags?post=218"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}