When someone buys a stock or holds units in a mutual fund, they often focus on prices and returns. That is understandable. But there is another layer of decisions that companies take things that affect the shares themselves. These are called corporate actions. They may not get headlines every day, but their effect can be big.
Investment banking courses often focus on corporate actions early on in the curriculum. These concepts are not just theory. They affect portfolios, fund value, and investor behaviour every single day.
But, if you’re keen on acquiring a basic idea of corporate action, here’s a handy guide.
What Is Corporate Action?
A corporate action is any move that a company makes which directly changes its securities. This could be issuing more shares, giving a dividend, or merging with another firm. These decisions usually come from the board of directors and get executed at a set date.
If you hold even one share, you are part of this. These actions can change the number of shares you own, their price, or the benefits linked to them.
Some actions affect everyone automatically. Others give shareholders a choice. Either way, they always require close attention.
Watch: What are Corporate Actions? Bonus, Dividends, Stock Splits, Rights Issue and Buybacks
Common Types of Corporate Actions You Should Know
There are three broad types of corporate actions. Knowing the difference helps in reacting properly when one is announced.
1. Mandatory Corporate Actions
These apply to every shareholder. You do not need to do anything. The company simply carries them out. Examples include:
- Bonus shares
- Stock splits
- Mergers
- Dividends
If the company splits its stock or gives bonus shares, your total value may stay the same, but your number of shares will change. These may look harmless, but they still affect how investors see the stock.
2. Voluntary Corporate Actions
These need your decision. You get to choose whether you want to take part. Tender offers and buybacks fall into this group. The company may ask if you want to sell your shares at a certain price.
Here, it helps to understand both the short-term offer and the long-term value of the stock.
3. Mandatory With Choice
This one sits in the middle. Everyone is affected, but you can still make a choice. For example, a company may offer dividends either in cash or as additional shares. If you do not choose, they pick one for you by default.
Main Types of Corporate Actions and Their Meaning
Here is a list of the key types of corporate actions in an easy-to-follow tabular format:
| Corporate Action | Type | Example | Impact on Investor |
| Dividend | Mandatory | Cash payout | Cash received, price may adjust down |
| Stock Split | Mandatory | 2-for-1 split | More shares, lower price per share |
| Rights Issue | Voluntary | Discounted shares | Option to buy more shares |
| Share Buyback | Voluntary | Fixed repurchase price | Chance to exit at a set price |
| Merger or Acquisition | Mandatory | Company A merges with B | Ownership changes, tax may apply |
The Real Impact of Corporate Actions on NAV
Mutual funds and ETFs deal with another metric: Net Asset Value (NAV). This is the per-unit value of all holdings in the fund. Corporate actions play a big role here too.
1. Dividends Cut the NAV
When a stock pays dividends, the fund receives money. But the stock price often falls by the same amount. So while there is income, the NAV drops on that day. This is normal.
2. Stock Splits and Bonus Shares Adjust the Unit Price
If a company issues bonus shares or splits its stock, the fund’s holding in terms of shares increases. But since the total value remains the same, the NAV per unit adjusts.
3. Rights Issues and Dilution
Sometimes companies raise money by offering shares at a discount. If a mutual fund owns those shares, it needs to decide whether to buy more or allow dilution. Either way, the NAV gets affected.
How Corporate Actions Affect NAV
Here’s an easy tabular guide on the impact of corporate actions on NAV:
| Corporate Action | Direct Effect on NAV | Explanation |
| Dividend | NAV drops by dividend amount | Reflects payout from fund holdings |
| Stock Split | No major change | More shares at lower price; value unchanged |
| Rights Issue | May cause dip | Discounted shares reduce average share value |
| Buyback | NAV may rise | Reduced supply improves share value |
Why Investors Should Pay Attention
It is easy to miss these events, especially if you are a passive investor. But ignoring corporate actions can lead to high tax bills, unexpected gains or losses, or changes to your ownership percentage.
Here are a few common scenarios:
- If you miss a rights issue, your ownership percentage might fall
- If you accept a tender offer without checking market trends, you might miss better prices
- If you do not plan for tax on dividends or mergers, you may pay more than you expect
The good news is, these events are usually announced in advance. Most fund managers and brokers send alerts or list them in your account statement. The challenge is knowing what to do next. That is where courses and market knowledge help.
Conclusion
For anyone serious about understanding how the markets really move, corporate actions are something worth knowing well. They can change the number of shares in the market, affect the value of your holdings, and sometimes come with tax implications.
If someone wants to work in finance or just make sharper investment decisions, learning about corporate actions is a smart step. One good place to start is Imarticus Learning. Their Certified Investment Banking Operations Program offers deep exposure to corporate events, market operations, and how back-office roles handle these transitions.
FAQs
What is a corporate action?
It is a decision by a company that changes its securities. This includes events like dividends, splits, mergers, and share buybacks.
How do corporate actions affect individual investors?
They can change how many shares you hold, their value, or your decision to hold or sell. Some may come with tax outcomes.
What is the impact of corporate actions on NAV?
They may affect the NAV of mutual funds based on whether the value of underlying stocks shifts due to those actions.
Do investors always have to act on corporate actions?
No. Some actions are automatic, but others, like rights issues or tender offers, need you to respond if you want to take part.
Are corporate actions always good for shareholders?
Not always. Some are positive, like bonuses or dividends. Others might dilute value or signal problems.
Where can I learn more about these concepts?
Courses like the Certified Investment Banking Operations Program from Imarticus Learning offer practical lessons and case studies.
How do I track corporate actions for my stocks or funds?
You can follow company announcements, check your broker dashboard, or read your fund manager’s monthly report.