Bonus shares (also "right shares") on the PSX, explained

Beginner-friendly Updated June 2026

If you own shares on the Pakistan Stock Exchange long enough, you will eventually get a notice about a bonus issue or a right issue. These are two of the most common corporate actions you will meet, and people often lump them together as bonus shares (also "right shares"). Both change how many shares you hold and what each one is worth, and neither is as simple as the word "free" or "discount" makes it sound. Here is what actually happens, with round numbers so the math stays easy.

What are bonus shares?

Bonus shares are extra shares a company gives to existing shareholders without asking for cash. The company takes money sitting in its reserves (retained profits it never paid out) and converts it into new shares. Your share count goes up, and you do not pay the company for the shares themselves.

The catch is that the company is not worth any more than it was the day before. The same pie is now cut into more slices, so each slice is smaller. The PSX adjusts the share price downward to match, using its ex-price mechanism around the book closure date. This is why a bonus issue is not free money.

Say you own 100 shares of a company at Rs 200 each, so your holding is worth Rs 20,000. The company declares a 20 percent bonus, meaning 20 new shares for every 100 you hold. You now own 120 shares. But the price is adjusted to roughly Rs 167 (Rs 20,000 divided by 120). Your total is still about Rs 20,000. You did not get richer. You just hold more shares at a lower price.

There is one more thing to keep on your radar: bonus shares can be subject to tax in Pakistan. The rules and rates change with each Finance Act, so rather than rely on a number you read online, check the current position with the Federal Board of Revenue (FBR) or your broker. Our guide on withholding tax in Pakistan explains how this kind of deduction usually works.

So why do companies bother? A bonus issue rewards existing holders, can signal management confidence, and lowers the per-share price, which can make the stock feel more affordable and trade more actively. In its effect on the share count it is close to a stock split, though the accounting behind it is different. If you want the basics of what a share even is, see our guide on what is a stock or share.

What are right shares?

A right issue is different. Here the company wants new cash, so it offers existing shareholders the right to buy newly created shares, usually at a price below the current market price. The discount is the incentive to take part.

Companies raise money this way to pay down debt, fund expansion, or strengthen the balance sheet. Offering shares to current owners first is often cheaper and faster than going to outside investors, and existing holders get the first chance to keep their proportion before new shares change the mix.

Suppose the stock trades at Rs 200 and the company announces a right issue at Rs 100 (a 50 percent discount) in a ratio of 1 right share for every 4 you own. If you hold 400 shares, you can buy 100 new shares at Rs 100 each, costing you Rs 40,000 in fresh cash.

Take them up, sell the right, or let it lapse

With a right issue you usually have three choices.

• Subscribe (take them up). You pay the discounted price and buy the new shares. Your percentage ownership stays roughly the same and you have paid below the market price for the extra stake.
• Sell or renounce the right. Under the Companies Act, 2017, a shareholder who does not want to subscribe can usually renounce the offer in favour of someone else within the time stated in the company's letter of offer. In practice that means the entitlement can have value you pass on instead of letting it go to waste. The exact terms, the deadline, and how renunciation is handled are set out in each company announcement and governed by PSX and SECP rules, so read the letter of offer carefully.
• Let it lapse. You do nothing. You keep your old shares but buy none of the new ones. Because the company issued more shares and you took none, your slice of the company shrinks. This is dilution.

Letting a right lapse is the option that quietly costs you. New shares go out at a discount, the overall price drifts toward a blended level, and you own a smaller fraction than before. If you cannot or do not want to put in more cash, at least understand that skipping a right is a real decision, not a free pass, and that renouncing it may be better than ignoring it.

Bonus shares vs right shares, side by side

• Do you pay? Bonus: not for the shares themselves, though tax may apply. Right: yes, at a discounted price.
• Where the shares come from. Bonus: company reserves. Right: newly issued shares sold for cash.
• Why the company does it. Bonus: reward holders, lower the price, signal strength. Right: raise fresh capital.
• Effect on your total value. Bonus: roughly unchanged after the price adjusts. Right: depends on whether you subscribe or sell the right.
• Risk of dilution. Bonus: none, everyone gets the same proportion. Right: yes, if you neither take part nor renounce.

What this means for you as a PSX investor

Treat a bonus issue as close to a non-event for your wealth. Your account will show more shares at a lower price, and that is normal. Do not assume the company suddenly handed you money, and remember that any tax due can take a small bite. Some firms on the PSX prefer bonus issues over cash payouts, which is one reason to read past the headline when you compare names. For how regular cash payouts work, see what is a dividend and our list of dividend stocks in Pakistan.

Treat a right issue as a decision that needs your attention and possibly your cash. Read the ratio, the subscription price, the deadline, and the reason the company gives for raising money. A right issue to fund a strong project is one thing. A right issue to plug repeated losses is another. If you ignore the notice entirely, you accept dilution by default when you might have subscribed or sold the right instead.

Both actions change share counts and prices without changing the underlying business overnight. Knowing that keeps you from celebrating or panicking over a number that is just being rearranged. To see how prices and shares interact more broadly, our guide on how the stock market works fills in the rest. None of this is advice on any particular stock; it is background so you can read a corporate action and decide for yourself.

Key takeaways

• Bonus shares are extra shares from company reserves, but the price adjusts down so your total value barely changes. It is not free money.
• Bonus shares can be taxed in Pakistan, and the rules change with each Finance Act, so check the current position with the FBR.
• Right shares are an offer to buy new shares at a discount, used by companies to raise fresh capital.
• With a right issue you can subscribe to keep your stake, renounce or sell the right, or let it lapse and accept dilution.
• Bonus issues cause no dilution because every holder gets the same proportion. Right issues dilute anyone who neither subscribes nor renounces.

Frequently asked questions

Are bonus shares free money?

No. You get more shares without paying for the shares themselves, but the price is adjusted down to match the larger share count, so your total holding is worth about the same as before. Bonus shares can also be taxed in Pakistan, so check the current FBR rules.

What happens if I ignore a right issue?

If you neither subscribe nor renounce the right, you keep your existing shares but your percentage ownership shrinks. That is dilution, and it usually means you give up a little value you could have kept by acting.

Can I sell my rights instead of subscribing on the PSX?

Often yes. Under the Companies Act, 2017, a shareholder who does not want to subscribe can usually renounce the offer in favour of someone else within the deadline in the letter of offer. The exact terms vary by company and are governed by PSX and SECP rules, so read the announcement.

Why do companies issue right shares at a discount?

The discount is the incentive for existing shareholders to put in fresh cash. The company needs the money, often to cut debt or fund expansion, and a lower price makes the offer more attractive.

What is the difference between bonus shares and right shares?

Bonus shares come from reserves with no cash paid for the shares and no dilution, though tax may apply. Right shares cost money, come from newly issued stock to raise capital, and dilute you if you neither take part nor renounce.

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Educational only, not financial advice.