What type of issue is characterized by distributing additional shares to existing shareholders based on their current holdings?

The correct type of issue characterized by distributing additional shares to existing shareholders based on their current holdings is known as a rights issue. In a rights issue, existing shareholders are given the opportunity to purchase additional shares, typically at a price lower than the current market value, in proportion to their existing shareholdings. This allows shareholders to maintain their proportionate ownership in the company and avoids dilution of their stake.

In contrast, a bonus issue, also known as a scrip issue or capitalization issue, involves issuing new shares to existing shareholders for free based on the shares they already own, but does not require them to pay anything or make a decision regarding the purchase. Dividend reinvestment typically involves shareholders using their dividends to purchase more shares rather than being directly issued new shares by the company. A stock split is a different action that increases the number of outstanding shares by dividing each share into multiple shares, but does not involve issuing new shares based on existing holdings.

Thus, a rights issue is specifically designed to enable current shareholders to acquire additional shares in direct relation to their existing ownership, making this the right answer.