Shares issued free of cost to the shareholders of a company, by capitalizing a part of the company's reserves. Following a bonus issue, though the number of total shares increase, the proportional ownership of shareholders does not change.
It is the issue of new fully paid-up shares to existing shareholders on a pro-rata basis. The impact of a bonus issue is to reduce the share price as the same market capitalisation of the company is spread over a larger number of shares, which in turn benefits the liquidity of the scrip.
Shares allotted to the existing shareholders by capitalising the reserves into additional capital. When market expects a company to come out with a Bonus Issue, the price of the shares normally goes up.