3.16What is a stock split?
1What is it?
A stock split divides each share into more shares with a lower face value. The total value of your holding doesn’t change.
2Why does it exist?
It makes a high-priced share more affordable and easier to trade.
3Real-life example
Cutting a pizza into 8 slices instead of 4. More slices, same pizza.
4Diagram
Before: 10 × ₹2,000
₹20,000
After: 50 × ₹400
₹20,000
5Calculation
New shares = Old shares × split ratio; New price ≈ Old price ÷ split ratio
- You hold 10 shares at ₹2,000 (face value ₹10).
- 1:5 split → face value becomes ₹2.
- You now hold 50 shares at ≈ ₹400.
- Value before: 10 × ₹2,000 = ₹20,000. After: 50 × ₹400 = ₹20,000.
More shares, same total value.
6Quick revision
- Split = more shares, lower price, same value.
- Face value also reduces.
- Improves affordability and liquidity.
7Knowledge check
Q1. 20 shares at ₹1,000, 1:2 split. New holding?Show answer
40 shares at about ₹500, still ₹20,000.
Q2. Does a split make you richer?Show answer
No, the value stays the same.
Q3. What happens to face value in a 1:10 split of ₹10 FV?Show answer
It becomes ₹1.