Understanding a rights issue is not just about the discounted shares — it’s also about knowing the key terms that affect your investment. Terms like Rights Entitlement (RE), record date, renunciation period, and call money determine how much you can subscribe, when, and with what flexibility.
Content:
This chapter explains these terms in simple, investor-friendly language, so you can read announcements, apply confidently, and make smart decisions during a rights issue.
Rights Entitlement (RE) is not a share. It is a temporary credit added to the shareholder’s demat account when a company announces a rights issue.
These REs represent the right (but not the obligation) to apply for additional shares at a discounted price. They are credited to shareholders in proportion to their existing holdings as of the record date.
Example: If the company announces a rights issue in the ratio of 1:4, you’ll receive 1 Rights Entitlement for every 4 shares you hold.
Shareholders can choose to:
Note: Rights Entitlements are temporary and expire once the issue closes if not used or sold. They do not represent ownership in the company.
The record date is the cut-off date set by the company to determine which shareholders are eligible to receive Rights Entitlements (REs).
Only shareholders who hold shares on the record date are entitled to receive REs. The company announces the record date in advance through the Letter of Offer and stock exchange notifications.
Example: If the record date is 10th August, you must hold the shares in your demat account on or before 10th August to be eligible. Selling your shares before this date will make you ineligible, even if you bought them earlier.
The RE credit date is the date when the Rights Entitlements (REs) — which are temporary credits, not shares — are added to eligible shareholders’ demat accounts.
This usually happens a few days/a day before the rights issue opens. The REs are visible in your demat account under a separate ISIN, for example, ABC-RE.
Note: These REs represent your right to apply for new shares at the issue price or to sell/transfer them if the issue is renounceable. They do not represent ownership until you subscribe and shares are allotted.
The "credit date" for rights shares is the date on which the newly allotted shares are credited to an eligible shareholder's demat account, typically after the issue closing date. This process occurs after the company finalises the allotment and informs the depository.
The Renunciation Period is the time during which eligible shareholders can sell or transfer their Rights Entitlements (REs) to another investor.
It begins when the rights issue opens and ends a few days before the closing date, allowing the buyer time to apply for the shares.
Renunciation can happen in two ways:
The same ratio of entitlement applies to renunciation — you can sell or transfer all or part of the REs credited in that ratio. Once the renunciation period ends, REs can no longer be traded or transferred.
Companies can collect payment from investors in one of two ways:
Shareholders pay the entire issue price upfront.
Example: If the issue price is ₹1.75, the full ₹1.75 per share must be paid at the time of application.
Shareholders pay a part of the issue price at application and the remaining balance later, when the company announces the call(s).
Example: If the issue price is ₹8.50, ₹4.25 may be payable on application and ₹4.25 later when called by the company.
The company must collect all outstanding call money within 12 months from the date of allotment.
The Letter of Offer (LOF) is the official document filed with SEBI and sent to shareholders. It explains all important details such as:
The investors should always read and understand the LOF carefully before applying.
The rights issue ratio determines how many Rights Entitlements (REs) a shareholder receives based on their existing shareholding. Each RE gives the shareholder the right to apply for one new share at the issue price.
Example: If the rights issue ratio is 2:5, it means a shareholder will receive 2 REs for every 5 shares held, giving them the right to apply for 2 new shares at the issue price.
In short, the ratio shows how many Rights Entitlements are credited to a shareholder’s demat account, which in turn reflects how many new shares they can subscribe to in the rights issue.
The issue price is the price at which the company offers new shares to eligible shareholders.
It is usually lower than the current market price, making it a cost-effective opportunity for existing investors.
The issue period is the window during which investors can apply for rights shares or trade their REs.
A rights issue remains open for a minimum of 7 days and a maximum of 30 days. This is the period during which eligible shareholders can apply for shares, sell, or renounce their Rights Entitlements (REs).
It is important to apply or act on your REs within this window. Once the issue closes, any unexercised or unsold REs will expire and become worthless.
After the issue closes, the company allots shares to those who applied. The new shares are credited to the investors’ demat accounts, and trading usually starts soon after allotment.
Date of Allotment:
The "Date of Allotment" for a rights issue is the specific date by which the company officially allocates the new shares to shareholders who have applied. The company determines this date and typically provides it in the offer document or timetable for the rights issue.
Renunciation of rights issue means transferring your Rights Entitlements (REs) to another person instead of using them to apply for shares yourself.
In simple terms, if you do not wish to invest more money in the company, you can sell or give away your REs to someone else during the renunciation period. The buyer (called the renouncee) then gets the right to apply for those shares at the issue price.
Renunciation can happen in two ways:
It is important to note that renunciation is allowed only in renounceable rights issues. Once the renunciation period ends, REs cannot be traded or transferred.
Technically, yes — you can sell your shares on the record date, because your name will already appear in the company’s records for determining eligibility. With the T+1 settlement system, the buyer’s name will be updated only on the next day.
However, it’s safer to wait until the next trading day after the record date before selling your shares. This ensures there’s no settlement-related risk that could affect your eligibility for receiving Rights Entitlements (REs).
Example: If the record date is 10th August, you must buy shares on or before 9th August to qualify. You can sell on 10th August, but waiting until 11th August is safer to avoid any eligibility issues.
When Rights Entitlements (REs) are credited to your demat account, they represent your right to apply for new shares in the rights issue — not actual shares themselves. You generally have three options:
Always act before the issue closing date — either apply or sell. Once expired, REs hold no value and are automatically removed from your demat account.
A partly paid rights issue is one where shareholders don’t pay the full issue price upfront when applying for rights shares. Instead, the payment is made in instalments, as and when the company calls for it.
Example: If a rights issue price is ₹100 per share and the company asks for ₹25 at application and ₹75 later, investors pay ₹25 per share initially. The balance ₹75 will be payable when the company announces the call.
The partly paid shares are traded separately under a different symbol (e.g., XYZ-PP) till the entire money is paid.
