What is Rights Issue? Should You Subscribe or Sell Your Rights?
Rights issue lets existing shareholders buy new shares at a discounted price.
A rights issue is when a company offers existing shareholders the right to buy additional shares at a price below market value, in proportion to their current holding. If you hold 100 shares and the rights ratio is 1:5, you can buy 20 additional shares at the discounted rights price.
Unlike a bonus where shares are free, rights require you to pay. But the price is typically 20 to 40% below market. You have the right but not the obligation to subscribe. If you do not want to invest more, you can sell your rights entitlement on the exchange.
Should you subscribe to a rights issue?
If the company is fundamentally strong and using the funds for productive purposes, subscribing at a discount is attractive. If the company is raising money to repay debt or fund losses, the discount may not compensate for the risk.
What happens if you do nothing?
Your rights entitlement expires worthless. New shares dilute your ownership without you receiving any benefit. Either subscribe or sell the rights entitlement, never let it lapse.
Track rights issues and entitlements on Stockk Equity. Apply for rights through your Stockk demat account.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice. INDIRA SECURITIES PRIVATE LIMITED : SEBI REG. NO.: INZ000188930, NSE TMID: 12866, BSE TMID: 663, CDSL DPID: 17000, MCX TM ID: 56470, NCDEX TM ID: 01277, CDSL REG.NO.: IN-DP-90-2015, CIN:U67120MP1996PTC085111, RA SEBI REG. No.: INH000023269, IA SEBI REG No.: INA000021410. For any complaints pertaining to securities broking please write to [email protected], for DP related to [email protected].
Frequently Asked Questions
How is rights issue different from FPO?
Rights issue offers shares only to existing shareholders at a discount. FPO (Follow-on Public Offer) is open to everyone at near-market price.
Can I sell my rights entitlement?
Yes. Rights entitlements are traded on NSE/BSE during the subscription period. If you do not want to invest more, sell them to recover value. Use StockkAsk at stockk.trade/stockkask for rights details.
What is the rights ratio?
The number of new shares offered per existing shares held. 1:5 means 1 new share for every 5 held. Higher ratio means more dilution.
How is rights price determined?
The board sets the rights price, usually at a discount to current market price. The discount incentivizes subscription. Too small a discount results in poor uptake.
Are rights issue shares listed immediately?
After allotment, rights shares are credited to demat and listed for trading. The process typically takes 2 to 3 weeks after issue closure.
Investments in securities market are subject to market risks. This article is for educational purposes only and does not constitute investment advice.
INDIRA SECURITIES PRIVATE LIMITED : SEBI REG. NO.: INZ000188930, NSE TMID: 12866, BSE TMID: 663, CDSL DPID: 17000, MCX TM ID: 56470, NCDEX TM ID: 01277, CDSL REG.NO.: IN-DP-90-2015, CIN:U67120MP1996PTC085111, RA SEBI REG. No.: INH000023269, IA SEBI REG No.: INA000021410
