What is a Rights Issue and how does it work for existing shareholders?
If you hold shares in a company that announces a Rights Issue, you’ll receive an opportunity to buy additional shares—often at a discounted price. This can be a good way to increase your investment in the company, but it’s important to understand how it works.
What is a Rights Issue?
A Rights Issue (also called a Rights Offering) is a method by which a listed company raises additional capital by offering new equity shares to its existing shareholders. These shares are offered in a specific ratio and typically at a discounted price compared to the market rate.
Companies opt for Rights Issues to fund expansion, acquisitions, debt reduction, or other corporate needs. The Rights are offered based on your current shareholding, and the allocation is called Rights Entitlement (RE).
Example
Let’s say MNC Ltd is trading at ₹102 and announces a Rights Issue in the ratio of 3:5 at a discounted price of ₹90. This means:
- For every 5 shares held, you’re eligible to buy 3 additional shares at ₹90.
- If you hold 100 shares, you’ll receive 60 Rights Entitlements (100 × 3/5).
- You can then apply to buy these 60 shares at ₹90 during the issue period.
What If...
| Scenario | Explanation |
|---|
| I don't want to participate in the Rights Issue | You can ignore it. Unused REs will lapse after the issue window closes. |
| I want to apply for more than my entitlement | You can apply for additional shares, but allotment is not guaranteed—it depends on availability after RE-based allotments. |
| I sell my shares before the record date | You won’t be eligible for the Rights Entitlement. The new holder will receive the RE. |
| I miss the Rights Issue application deadline | You won’t be able to subscribe. Unused REs will expire and become worthless. |
Check the company’s official announcement and the NSE/BSE website for record dates, issue ratios, and application timelines. You’ll also receive REs in your Demat account, which need to be acted upon during the Rights Issue window.
Last updated: 28 Jun 2025
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