What is right entitlement?
A Right Entitlement (RE) is a temporary security issued to existing shareholders, giving them the right to buy additional shares at a discounted price as part of a rights issue. REs are credited to your Demat account based on your shareholding as of the record date.
How can you use REs?
Shareholders can choose one of the following options:
- Subscribe to the rights issue using the REs and pay the issue price
- Sell the RE on the exchange during the RE trading window
- Let the RE lapse, in which case it becomes worthless after expiry
Risks of trading REs
- Illiquidity: REs may have low trading volumes, making buying/selling difficult
- High volatility: Prices can fluctuate sharply based on demand and expiry timelines
- Expiry risk: If not sold or exercised in time, REs expire worthless
- Non-refundable: Buying REs from the market doesn’t guarantee allotment of shares if your rights issue application is rejected
Example
Suzlon Energy Ltd. launched a rights issue in the ratio of 5:21 (5 REs for every 21 shares held). The REs were tradable from 11th to 14th October. Here’s how it worked:
- Existing shareholders received REs based on their holdings
- They could sell REs on the exchange if they didn’t want to apply
- New investors could buy REs from the market and then subscribe
- REs not exercised or sold by the end of the trading period expired worthless
REs are tradable only during a specific window. Always check the RE trading timeline before making a decision.
What if...
| Scenario | Outcome |
|---|
| I miss the RE trading window | The RE will expire and become worthless. |
| I buy REs from the exchange but don't apply | No refund—REs must be exercised to convert into shares. |
| I hold shares but don’t get REs | Check your holding date and ensure your Demat is correctly linked. |
Last updated: 25 Jun 2025
Related Articles
What is Right issue?
Right issue (Also called right offering) is a framework through which companies raise additional capital by a new issue of Equity shares to the existing shareholders at a discounted price. A company goes for the right issue for various reasons, such ...
Can an option buyer exercise their right any time during the contract's duration?
No, in the Indian derivatives market, option contracts follow the European style of exercise, meaning they can only be exercised on the expiry date, not before. This rule applies to both index and stock options traded on NSE. What Does This Mean for ...
How to apply for a rights issue?
A rights issue allows a company to offer additional shares to existing shareholders at a discounted price. If you're eligible, you’ll receive a Rights Entitlement (RE) in your Demat account. You can use this entitlement to subscribe to new shares or ...
What is a call option?
A Call Option is a derivative contract that gives the buyer the right (but not the obligation) to purchase an underlying asset at a predetermined price (strike price) by a certain expiration date. Effects of Buying a Call Option Right to Buy: When ...
What is a put option?
A Put Option is a type of derivative contract that grants the buyer the right, but not the obligation, to sell a specified amount of an underlying asset at a set price (strike price) within a specified timeframe. Effects of Buying a Put Option Market ...