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Reduction of Investment Unit / Mechanism and Effects of Share Split

How Share Splits Work

Listed companies sometimes conduct share splits to reduce the size of their investment units.
When a share split is carried out, the number of shares increases and the price of each share proportionally decreases. While there is no change in the actual value of the entire stock holding, the minimum necessary investment amount becomes smaller as the size of the share’s investment unit decreases.

Example: Company A's stock (share price: JPY 20,000, 100 shares held) is split at a 5-to-1 ratio.

Although the stock price in this example will be reduced to one-fifth its original price (from JPY 20,000 to JPY 4,000) due to the share split, the number of shares held will increase from 100 to 500, so there is no change in the actual value of the entire stock holdings. Because trading on the TSE is conducted using 100 share lots, the size of the minimum investment amount will shrink to JPY 400,000 (JPY 4,000 x 100 shares) from JPY 2 million (JPY 20,000 x 100 shares).

Effects of Share Split

Easier to Purchase Shares of Listed Companies

The percentage of “high investment unit companies” (companies with investment units of JPY 500,000 or more) has remained below 10% in recent years. As of September 30, 2022, 95.1% of TSE-listed companies had investment units less than JPY 500,000.

Facilitate Investment Diversification with Smaller Amounts of Money

When a share split is conducted, the minimum investment amount becomes smaller, allowing for a more diversified portfolio with smaller amounts of money.

For example, if the price of Company A’s stock is JPY 20,000, the minimum investment amount is JPY 2,000,000 (JPY 20,000 x 100 shares), if you invest in this stock when you have JPY 2,000,000 on hand, you cannot invest in other stocks or products such as ETFs. However, if Company A conducts a 5-for-1 share split, the stock price in this case will be reduced to one-fifth, and the minimum investment amount will be JPY 400,000 per unit (JPY 4,000 x 100 shares), enabling the investor to invest in Company A’s shares as well as other products such as stocks or ETFs with the JPY 2 million they have on hand.

Easier to Incorporate into NISA

When a share split is conducted, the investment unit (minimum investment amount) becomes smaller, making it easier to include earnings from the target company's shares in tax-exempt NISA accounts.

For example, assuming the price of Company A’s shares are JPY 20,000, the minimum investment amount would be JPY 2,000,000 (JPY 20,000 x 100 shares). Since the annual investment limit of the NISA is JPY 1.2 million, Company A’s shares could not be purchased and included in the NISA account. However, if a 5-for-1 stock split is conducted for Company A’s shares, those shares can be purchased for as little as JPY 400,000 (JPY 4,000 x 100 shares) in this example, which means that you can include the shares in your NISA account within the annual investment limit.