What is the difference between rights and bonus issue?

Bonus issues are shares issued free of charge to shareholders. When a company accumulates a large fund from profits, much beyond its needs, the directors may decide to distribute a part of it among the shareholders in the form of bonus. Once a bonus is issued, the price of the shares is likely to drop as the value of the company’s assets is now spread over a larger number of shares. Rights shares are issued to existing shareholders who have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time. A company can opt for a rights issue to raise capital under secondary market offering.