A rights issue is a company raising fresh capital from its existing shareholders, by offering them new shares at a discounted price, in proportion to what they already hold.
It is a primary-market event: the money goes to the company.
How the offer is structured
The offer is expressed as a ratio, for example 1:4 — one new share for every four held — at a stated issue price below the current market price.
You hold 400 shares trading at ₹250.
The company announces a 1:4 rights issue at ₹200 per share.
Your entitlement: 400 ÷ 4 = 100 new shares, at ₹200 each = ₹20,000 to subscribe in full.
The discount is not a gift
The issue price is below market, which looks like free value. It is not, because the company is issuing more shares, and the price adjusts to reflect that.
Continuing the example above.
Before: 400 shares × ₹250 = ₹1,00,000
You subscribe: add ₹20,000 cash for 100 shares at ₹200
After: 500 shares, and ₹1,20,000 of value → about ₹240 per share
You now hold 500 shares at roughly ₹240. You have ₹1,20,000 of shares and spent ₹20,000 of cash. The "discount" has been absorbed into a lower price for every share you hold.
That adjusted price is sometimes called the theoretical ex-rights price. The exchange adjusts the reference price on the ex-date accordingly.
Your three options
1. Subscribe in full. Pay the money, receive the shares, keep your percentage stake intact. You can usually also apply for additional shares beyond your entitlement, allotted if other shareholders do not take up theirs.
2. Sell the rights entitlement. Your entitlement is credited to your demat account as a separate tradeable instrument — the Rights Entitlement (RE), with its own symbol and ISIN. It trades on the exchange during a defined window. Selling it recovers some value in cash instead of subscribing.
3. Do nothing. The RE lapses worthless at the end of the window. You pay nothing and receive nothing, while the share price has adjusted downward and your percentage stake is diluted.
The RE trading window
- REs are credited to your demat account after the record date
- They trade on NSE and BSE for a limited number of days — typically a window closing a few days before the issue itself closes
- RE prices are volatile and the instruments are often thinly traded
- After the window, unsold and unexercised REs lapse permanently
How to apply
Through your broker's rights issue section, or through ASBA with your bank, or through the registrar's rights issue platform. The application process resembles an IPO — funds are blocked and debited on allotment.
The RHP-equivalent document for a rights issue, the Letter of Offer, is public and states the ratio, price, dates and the purpose of the fundraising.
What to actually think about
The mechanics are neutral. The question that matters is why the company needs the money.
Reasonable: funding a specific expansion, an identified acquisition, or reducing expensive debt with a clear plan.
Worth examining: repeated rights issues, money to cover operating losses, or vague purposes. A company that keeps returning to shareholders for cash is telling you the business does not fund itself.
Also look at whether the promoters are subscribing to their full entitlement. Promoters declining to put in their own money while asking minority shareholders to do so is worth noting.
Key takeaways
- A rights issue offers existing shareholders new shares at a discount, in proportion to their holding.
- The discount is absorbed by a downward price adjustment — it is not free value.
- Your rights entitlement is a tradeable instrument credited to your demat account.
- Doing nothing lets the RE lapse worthless — sell it if you do not want to subscribe.
- The important question is why the company needs the money, and whether promoters are participating.
Check your understanding
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