Introduction – Understanding the Concept of Rights Issue
Often, listed companies open a special window that gives existing shareholders a privilege no one else gets. This is called a rights issue, a fundraising method that feels both exclusive and practical because it lets shareholders buy new shares directly from the company at a price below the market rate.
What Is a Rights Issue of Shares?
A rights issue is a corporate action in which a company offers new shares to its existing shareholders at a predetermined price and ratio. Only shareholders who hold the stock on the record date receive these rights.
Why Companies Offer Rights Issues
Companies prefer a rights issue when they want to raise capital without taking on new debt. Funds raised may support expansion, reduce debt, launch new projects, strengthen working capital, or improve balance sheet stability.
Benefits of Rights Issue for Existing Shareholders
For shareholders, the advantages are clear:
• Shares are offered at a discount
• No competition from outside investors
• The option to buy, ignore, or sell the entitlement
• Opportunity to average holdings attractively
Key Terms You Should Know Before Applying
Before applying for any rights issue, understanding the essential terms helps decode the entire process.
Rights Entitlement (RE)
Rights Entitlement represents the number of new shares a shareholder can buy under the offer. REs are credited to the demat account and can be used to purchase new shares or sold in the market.
Record Date and Ex-Rights Date
• Record Date: Only shareholders who hold shares on this day receive REs.
• Ex-Rights Date: Usually one business day before the record date. Buying shares on or after the ex-date means REs won’t be credited.
Issue Price and Ratio
The company announces:
• Issue Price – The price at which new shares are offered
• Ratio – The number of rights shares available per existing share
Example: A ratio of 3:10 means three new shares for every 10 held.
ISIN (International Securities Identification Number)
Rights Entitlements receive a temporary ISIN so they can trade on the exchange. Once the issue closes, this ISIN becomes inactive.
Eligibility Criteria for Applying to a Rights Issue
Eligibility depends entirely on holding the share on the record date and maintaining an active demat account during the offer period.
Who Can Apply for a Rights Issue?
Any shareholder holding shares on the record date becomes eligible. This includes residents, NRIs, and institutional investors, subject to applicable regulations.
How to Check Your Rights Entitlement
Investors can verify REs through:
• NSDL/CDSL website
• Demat account statement
• Broker notifications
• RTA (Registrar and Transfer Agent) portal
Rights of Non-Resident Shareholders (NRI Eligibility)
NRIs are permitted to apply depending on whether shares are held under NRE or NRO mode. Payment rules differ slightly based on FEMA guidelines, but participation remains fully allowed.
Step-by-Step Process to Apply for a Rights Issue
Understanding the full process ensures a smooth application and prevents errors.
Step 1 – Check Your Rights Entitlement on NSDL/CDSL
Once REs are credited, they appear in the demat account in the “rights entitlement” section.
Step 2 – Choose How You Want to Apply (ASBA or R-WAP)
Two application paths exist:
• ASBA via net banking
• R-WAP via registrar’s portal
Step 3 – Apply Through Net Banking (ASBA Method)
In ASBA, banks block the application money until allotment. No funds leave the account until shares are allotted.
Step 4 – Apply Online via Registrar’s R-WAP Portal
R-WAP is helpful for investors whose banks don’t support ASBA. Applications are completed using the RTA’s website.
Step 5 – Make Payment and Confirm Application
Depending on the method, investors can authorize bank blocking (ASBA) or make a direct payment (R-WAP).
Step 6 – Allotment and Credit of Shares to Demat Account
After the issue closes and the allotment is finalized, new shares are credited to the demat account on the listing date or shortly after.
How to Apply for Rights Issue Using ASBA (Net Banking)
ASBA remains the most commonly used method.
Step-by-Step ASBA Application Process
• Log in to net banking
• Go to IPO/Rights Issue section
• Select the issue
• Enter quantity
• Confirm using RE details
• Approve fund block
Banks That Support ASBA for Rights Issue
Most major banks participate. These include:
• SBI
• ICICI
• HDFC
• Kotak
• Axis
• IDBI
How to Track Application Status
Investors can track the application on:
• Bank portal
• RTA portal
• Stock exchange application tracker
How to Apply Using R-WAP (Registrar’s Web Portal)
R-WAP helps investors whose banks do not offer ASBA support or prefer UPI/NEFT payments.
Step-by-Step Guide for R-WAP Application
• Visit the RTA website
• Choose rights issue section
• Enter PAN, DP ID, Client ID
• Enter quantity of shares
• Make payment
• Receive confirmation email
Payment Options in R-WAP (UPI, NEFT, RTGS)
R-WAP offers flexibility by allowing:
• UPI payments
• NEFT/RTGS transfers
• Online gateway payments
Common Issues and How to Resolve Them
Issues usually include:
• Payment delays
• Incorrect UPI approvals
• Name mismatches
• Late submissions
Most can be resolved by checking DP details or contacting the registrar.
What to Do With Rights Entitlements (REs)
REs give flexibility. Investors can apply, sell, buy more, or let them lapse.
How to Trade or Sell REs in the Market
REs trade like shares during the issue window. If an investor isn’t interested in applying, they can exit by selling REs on the exchange.
How to Apply Using Purchased REs
Buying REs in the market gives entitlement, but the application must still be submitted separately through ASBA or R-WAP.
What Happens if You Don’t Use or Sell REs Before Expiry
Unused REs lapse. No refund is given because REs carry no inherent value after expiry.
Timeline and Important Dates in a Rights Issue
Timelines guide the entire process.
Record Date and Credit of REs
Investors holding shares on the record date get REs credited automatically.
Issue Opening and Closing Dates
Applications can only be submitted during this official window.
Allotment and Share Listing Dates
After allotment, shares are credited to demat accounts.
Example – Rights Issue Application Explained
Sample Calculation of Entitlement Ratio
If you hold 100 shares and the issue ratio is 1:5:
1 rights share for every 5 shares → You get 20 REs.
Example of Rights Issue Application via ASBA
• You log in to net banking
• Enter 20 shares
• Approve blocking amount
• Await allotment
If fully allotted, shares reflect in the demat account.
Advantages and Disadvantages of Applying for a Rights Issue
Rights issues offer opportunity, but they come with responsibility.
Benefits – Discounted Price, Increased Holding
Buying at a discount, boosting stake, long-term compounding, and ownership continuity are the core positives.
Drawbacks – Dilution Risk, Payment Obligation
If shareholders skip applying, their stake reduces due to an increase in outstanding shares.
Mistakes to Avoid While Applying for Rights Issue
Missing the Deadline
The rights issue window is short. Missing dates means losing the entitlement or letting REs expire.
Applying Without Valid REs
Applications without matching REs get rejected.
Entering Wrong Demat or Bank Details
Small errors delay allotment or block refunds.
Conclusion – Why You Should Understand the Rights Issue Process
Rights issues unlock a powerful opportunity for shareholders who want to strengthen their position at a lower valuation. Understanding eligibility, timelines, RE trading, and application methods gives investors a clear advantage and ensures smoother execution.
FAQs
What is a rights issue, and how can I apply for it?
It’s an offer to buy discounted shares. Investors apply using ASBA or R-WAP.
Who is eligible to apply for a rights issue?
Anyone holding shares on the record date.
How do I apply for a rights issue through ASBA?
Through your bank’s net banking IPO/rights section.
What is the difference between ASBA and R-WAP?
ASBA blocks funds in the investor’s bank account. R-WAP accepts direct payments upfront.
Can I apply for a rights issue using UPI?
Yes, via R-WAP if enabled by the registrar.
Can I sell my rights entitlements (REs)?
Yes, REs can be traded on the exchange during the issue period.
What happens if I don’t apply for the rights issue?
Your REs lapse, and your shareholding gets diluted.
How long does it take for rights issue shares to be credited?
Usually, within a few days after allotment is finalized.
