In the share market, the “No Delivery Period” is one of the four steps a company must take before paying the upcoming dividend to its shareholders, as it determines whether the buyer of a company will be eligible to receive its next payment.
What are Bonus Shares?
Bonus shares are extra, free shares given to the present shareholders. Shareholders may exchange these shares on the secondary market to satisfy liquidity requirements. A corporation may not always have enough liquid assets to pay a dividend in cash. In such cases, the corporation grants bonus shares to the present shareholders.
What is the “No Delivery Period”?
In the stock market, the beginning of the ‘No Delivery’ date is also referred to as the ‘Ex Date’ for the settlement. In contrast to the seller, the buyer of shares on or after the ex-dates is not qualified to receive bonus shares.
For the shares to be credited to the Demat account on the record date, the client must purchase shares at least two days before the record date. Ex-date is, therefore, one day before the record date.
To ensure sufficient time to complete a transfer of stock ownership from the seller to the buyer, the ex-date serves as a buffer. Because of this, you must purchase the stock before the ex-date to receive the upcoming payment.
Example of No Delivery period while processing bonus shares
Let’s understand this with a stock market trade, where Thursday is the record date for corporate action. This stock’s ex-date will be Wednesday, one trading day prior to the record date. To be qualified for the corporate action benefit, the shares must be purchased by Tuesday at the latest. The shares will trade with corporate action benefits up until Tuesday and begin trading ex-corporate action on Wednesday. The corporate action benefits will not apply to shares bought on Wednesday. Even though the shares were bought before the ex-date, why weren’t they entitled to corporate action benefits?
If Stock ‘A’ is trading at 800 INR on Tuesday and a dividend of 15 INR has been given a record date on Thursday, Wednesday is the ex-date, and the share value will get decrease by the dividend amount, which in this case would be 15 INR.
Final Words
Stock market investors should monitor important dates, including the ex-date, to increase profits. When the company announces a dividend, a procedure begins. It has specific guidelines for paying the dividends; the ex-date is important.
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