{"id":3588,"date":"2025-03-20T16:13:54","date_gmt":"2025-03-20T10:43:54","guid":{"rendered":"https:\/\/www.torusdigital.com\/toruscope\/?p=3588"},"modified":"2025-09-30T10:09:18","modified_gmt":"2025-09-30T04:39:18","slug":"what-is-stock-split","status":"publish","type":"post","link":"https:\/\/www.torusdigital.com\/toruscope\/stocks\/what-is-stock-split\/","title":{"rendered":"Stock Split Meaning, Working, Types and More"},"content":{"rendered":"

[vc_section el_id=”blog-inner-layout”][vc_row overlay_dotted=””][vc_column el_class=”blog_primary”][vc_row_inner][vc_column_inner][vc_column_text css=””]A <\/span>stock split<\/b> occurs when a company increases the number of its shares by creating additional shares. Thus, it lowers the price of each share, but there appears to be no change in the total value of all outstanding shares. Companies usually do this to attract investors’ attention with an additional focus on stock liquidity.\u00a0<\/span><\/p>\n

In a <\/span>stock split<\/b> of 2-for-1, one stock becomes two, and its price becomes half. The value of a company stays the same after a <\/span>stock split<\/b>, but its share price becomes more affordable. Unsure how this works? Gaining a thorough understanding of <\/span>stock splits<\/b> will help you decide on finance-related matters or investments with precise knowledge.<\/span><\/p>\n

Continue reading this blog to learn <\/span>what a stock split is<\/b>, its types, advantages, drawbacks and more.\u00a0<\/span><\/p>\n

<\/span>Stock Split Meaning<\/b><\/span><\/h2>\n

Stock split<\/b> refers to a corporate action where a company decides to break and divide its already existing shares into multiple shares to make trading easier. Now, there are more shares. However, the total market value of this company remains unchanged because the price of each share is reduced by the number of times it is split.\u00a0<\/span><\/p>\n

In most cases, a company follows a specific ratio for splitting its stock and determining how many shares it will get divided into. Common stocks are usually split following a ratio like 2 for 1 or 3 for 1, which means that shareholders receive two or three shares against one share owned, respectively.\u00a0<\/span><\/p>\n

One important thing to keep in mind is that splitting of stocks lowers the share prices, but it does not have much impact on current shareholders. This is because the company reduces the face value of each share by a fixed ratio. By dividing the previously issued shares, the total number of shares increases while the price of each share decreases. This leads to no net change for shareholders.<\/span><\/p>\n

<\/span>How do Stock Splits Operate?<\/b><\/span><\/h2>\n

A <\/span>stock split<\/b> is a corporate action that causes the number of shares to increase while lowering its prices. This is designed specifically to make necessary adjustments in the share structure without causing an impact on a company’s overall market capitalisation.\u00a0<\/span><\/p>\n

For this process to begin, the board of directors of a company must approve the <\/span>stock split <\/b>decision. They help in determining the split ratio, such as 3 for 1 or 5 for 1, which denotes the issuance of new shares for each existing share. For instance, in a 2-for-1 split, each shareholder expects to obtain two shares for each share owned.\u00a0<\/span><\/p>\n

After the execution of a <\/span>stock split<\/b>, the prices of shares are adjusted accordingly to the pre-decided ratio. To understand <\/span>how stock split works<\/b>, consider an example. If a stock was trading at \u20b9300 before a 3-for-1 split, it would now adjust to \u20b9100 each share after a split.\u00a0<\/span><\/p>\n

After the date of distribution, the new shares are automatically credited by brokers to the accounts of shareholders, considering their holdings before the split. This kind of adjustment is useful for investors who experience an increase in the number of shares held in their Demat accounts without having to take any action.\u00a0<\/span><\/p>\n

<\/span>What are the Benefits of Stock Splits?<\/b><\/span><\/h2>\n

Here are the distinguishing features and benefits of <\/span>stock splits<\/b>:<\/span><\/p>\n