1:10, 1:5, 1:2, 1:1 Popular Stock Splits Ratios: Here's How Investors' Shares Multiply, And Benefits!

Since the New Year 2024 commenced, a host of stocks have undergone a sub-division aka stock splits either from penny stocks to large caps. Share splits mean that listed companies can split their existing shares into a ratio decided by them for a host of reasons. These could be done to improve liquidity, lessen the value of the stock, make it cheaper or simply attract new buying from both existing and new investors.

In 2024, so far, many companies have undergone stock splits such as Cochin Shipyard, Nestle, Pearl Global, 7NR Retail, Dolphin Offshore, and the latest Maagh Advertising.

There are a few very popular stocks split. They are 1:10, 1:5, 1:2, and 1:1. But it is up to the listed companies to decide their stock splits ratio.

A 1:10 ratio means that 1 existing share will be subdivided into 10 new shares. Similarly, a 1:5 and 1:2 stock splits ratio means 1 existing per share will be split into five and two new shares. The case is the same for the 1:1 stock splits ratio as well.

When stocks are split, their face value gets trimmed as well. For instance, a 1:10 share split would mean 1 existing share price of a listed company having a face value of Rs 10 each, which will be subdivided into 10 shares having a face value of Re 1. In the case of 1:5, the face value of Rs 10 will be subdivided into Rs 2 each.

In stock splits, there are more number of shares, and face value reduces on them.

So what are the benefits of stock splits:

Some of the advantages of stock splits as per Motilal Oswal's website are:

Shares Become More Accessible:

High share prices are one of the primary reasons why companies choose to split shares. When a company's share price rises exponentially, it can dampen investor demand.

Investors, especially retail investors, generally prefer buying 10 shares that are priced at Rs. 500 per share than buying 5 shares that are priced at Rs. 1,000 per share. However, through share splits, a company can reduce its share prices and make it more accessible to investors without changing its value whatsoever.

Raises Liquidity:

Another one of the main stock split benefits is that the shares of a company generally see increased liquidity. Since shares have now become more accessible to retail investors, more people would show increased demand for them, which can increase liquidity on the counter. Buying and selling shares will be far easier after a stock split.

Increases Demand:

When any company's stock undergoes a split, the resultant share price may be increased. This is often followed by an almost immediate decrease in the price, but investors may well turn a profit if they act fast. The reason for the initial price increase is that many small investors may want to buy the newly "affordable" stock, increasing demand for it. Another possible rationale for the price increase could be that a stock split gives the market a clear signal that the share price of any company is on the rise. Individuals automatically assume that this growth will continue. This lifts the demand further and the prices as well.

Other Advantages:

Along with a split in shares and the benefits it may hold for many investors, both large and small, there are some additional benefits. These, of course, vary from company to company and their financial and other objectives.

Disclaimer: The write-up just highlights the stock split and is not a recommendation to buy, sell or hold. We have not done fundamental or technical analysis and have no opinion on the stock mentioned. Neither, the author nor Greynium Information Technologies should be held liable for any losses. Please consult a professional advisor.