Comment on The Zerodha Universe

Matti commented on 15 Nov 2018, 08:39 AM

The purchase price of a stock is not adjusted for the tax benefit, as Faisal has mentioned. This benefit exists in the first place because the purchase price simply does not change! When you receive bonus shares, you’re essentially receiving shares at 0 cost from the company for holding their stock. The market adjusts to account for these shares being issued, however, your original purchase price still remains the same. For example, let’s say you buy 10 Reliance for Rs. 100 apiece. Your buy average is 100 and total cost of purchase is Rs. 1000. Now, a month later, Reliance issues a 1:1 bonus. Assuming the stock is still trading at Rs. 100 pre-bonus, it will start trading at Rs. 50 ex-bonus. However, this does not change the fact that the stocks you bought cost Rs. 100 or that you paid Rs. 0 for the bonus stocks. You see? Hence, it is more prudent to leave the purchase price untouched in case of a bonus.

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