Rights Issue in India Explained: Should You Subscribe or Sell Your Rights?
What is a Rights Issue?
A rights issue is when a company offers existing shareholders the right (but not the obligation) to purchase additional shares at a price below the current market price, in proportion to their existing holding. Example: 1:4 rights issue at ₹500 means for every 4 shares held, you can buy 1 additional share at ₹500, when market price may be ₹700.
Why Companies Do Rights Issues
- Raise capital for expansion, debt repayment, or acquisitions
- Rights issues are faster and less expensive than fresh IPOs
- Existing shareholders get priority — less dilution than QIP (Qualified Institutional Placement)
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Rights Entitlements (RE): The Tradeable Right
SEBI changed the rights issue mechanism in 2020 — Rights Entitlements (REs) are now credited to shareholders’ demat accounts and trade on NSE/BSE for the duration of the offer period. You have three choices:
- Subscribe: Pay the issue price and receive new shares
- Sell your RE on the exchange: Receive cash for the entitlement you don’t want
- Do nothing: RE lapses after the offer period — you receive nothing
Financial Analysis: Should You Subscribe?
| Scenario | Action | Rationale |
|---|---|---|
| Rights price significantly below market; company fundamentals strong | Subscribe fully | Immediate value accretion at discount |
| Unsure about company; need liquidity | Sell RE on exchange | Capture the discount value in cash |
| Bearish on company | Sell RE immediately when credited | Avoid dilution risk; take cash |
| Can’t afford to subscribe | Sell RE to fund partial subscription | At least partially participate |
Important: Never Let Rights Lapse
Allowing your RE to lapse is the worst outcome. If you are not participating, sell the RE on the exchange during the offer period. Lapsing means your holding is diluted (more shares outstanding) and you receive nothing in compensation. Many retail investors are unaware their RE has been credited — check your demat account during rights issues of companies you hold.
How to Subscribe to a Rights Issue via Lemonn
- Check if any held company has announced rights issue in corporate actions calendar
- Look for RE credit in your demat account after record date
- Apply via ASBA through your bank’s internet banking or Lemonn’s ASBA platform
- Amount is blocked in your bank account until allotment
- Shares allotted after issue closes; funds debited on allotment
Disclaimer
The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. Lemonn (Formerly known as NU Investors Technologies Pvt. Ltd) do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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