What is a rights issue? How does a rights issue work?

A rights issue is a way for a company to raise additional capital by offering new shares to its existing shareholders—usually at a discounted price and in a fixed ratio to the number of shares they already hold.

How Do Rights Issues Operate?

• Announcement: The rights issue, record date, price, and share ratio (e.g., one share for every three held) are all disclosed by the company.
• Record Date: Rights Entitlements (REs) are credited to the Demat account of shareholders who held shares on this date.

What is a Right Entitlement (RE)?

A rights entitlement (RE) is the temporary security credited to your Demat account when a company announces a rights issue. It represents your right to apply for additional shares at a discounted price.

What happens if I buy/receive REs but don’t apply for rights shares?

If you buy or receive rights entitlements (REs) but don’t apply for the rights shares before the application deadline, the REs will expire worthless. You won’t get any shares, and the money spent to buy REs (if any) will be lost. REs do not get refunded or extended, so it's important to act within the specified time.

Can I apply for additional shares in the rights issue apart from my entitlement?

Yes, you can apply for additional shares in a rights issue over and above your entitlement if the company allows it. These are called extra or additional applications, and allotment depends on the availability of unsubscribed shares. However, approval is not guaranteed—it’s subject to discretion and availability.

Would I have to wait for these REs to be credited to my account to be able to apply for the rights issue?

Yes, you must wait for the REs (Rights Entitlements) to be credited to your Demat account before you can apply for the rights issue.