Here's how it works

Bonus Stripping is used on a stock which is at a notional loss and is issuing a bonus. After the bonus shares are gained, the original shares are sold at a loss which can then be offset against capital gains from other sources.

The stock in question must be purchased at least 3 months in advance and the bonus shares must be held for a period of one year after issue or else the investor will be liable to pay taxes because the bonus shares were technically acquired for zero value.

Here's an example

Adhiraj bought 10 stocks of ICICI Bank in June 2018 at ₹100 per stock. In September, the stock issues a 1:1 bonus and is now trading at ₹50. Adhiraj sells his original holding of 10 stocks to book a loss of ₹500 (₹50 x 10) which he can offset against gains made from other profitable investments.

Since he is bullish on the stock, he buys back the shares and continues to hold on it for the long-term. Thus, by using bonus stripping, Adhiraj has taken advantage of the tax offset from the loss while holding on to a lucrative stock.

As Bloom is a long-term investment product, Bonus Stripping works in its favor as most of the portfolio has a long term investment horizon and our fund managers constantly look for opportunities to utilize this tax saving method.