What is a Stock Split, and How Does it Affect Investors

1. What is a Stock Split, and How Does it Affect Investors? Many corporate actions take place in the world of the stock market. A stock split is also a corporate action. Today, let’s explore what is a stock split and how does it affect you as an investor? Let’s begin. What is a Stock Split? A stock split is nothing but dividing one share into multiple shares. Now, the question of why a company decides to split a stock is something we will discuss later. But, first, let’s understand the concept better. Let’s assume we give you two options to choose from a 5 kg cake or a 100- gram pastry of the same cake. Now, the condition is such that you have to choose any one of these and eat it all at once. Most of us would prefer a 100-gram pastry over a 5 kg cake! Now, this situation is very similar to a stock split. Just as a person might have to face various difficulties to have a 5 kg cake all at once. Hence, a big cake is sliced into small consumable pieces called pastries. Similarly, an investor will have to face many difficulties buying an expensive stock. And hence, the stock is broken down into more shares so that it is affordable for investors to buy. Read More About Stock Split

2. Why Does a Company Decide to Undergo Stock Split? Price of the Existing Share is Too High To Increase the Number of Outstanding Shares Impact of a Stock Split Conclusion Many investors have a misconception that the share price would rally or fall after a stock split. But that’s not the case. A stock split does not indicate that the company’s fundamentals have changed. So, it would be best if you never let the stock split influence your decision to buy or sell a stock.