9 Key Points to Understand Rights Issue in Simple Words

Last Updated on July 3, 2025 9:07:30 PM by Vivek Makwana

Learn 9 powerful benefits of a rights issue in simple words. Discover how to apply, who can invest, and what RE Shares mean for Indian investors.

👋 If you’ve ever seen a message in your demat account saying “RE shares Credited” or received an email from your stockbroker saying “Rights Issue Open Now”, don’t get confused. In this blog post, we’ll explain What a Rights Issue is, why companies offer it, how you can apply, and what happens if you don’t.

Whether you’re a beginner or a casual investor, this guide is written in Simple Language to help you understand the concept easily.

🔹 1. What Is a Rights Issue? 📝

A Rights Issue is when a company gives its existing shareholders a special offer to buy more shares at a discounted price.

🎯 Important: Only people who already hold shares of the company on a specific record date can get this offer.

👉 Example: If the share is trading at Rs200 in the market, the company may offer it to you at Rs150 through a rights issue.

This helps the company raise money, and you get a chance to buy shares cheaply.

🔹 2. Why Do Companies Offer a Rights Issue? 💰

There are several reasons why a company may raise funds through a rights issue:

• 🏗️ For business expansion or launching new projects
• 💳 To reduce or repay existing debt
• 🔧 To manage day-to-day business operations (working capital)
• 📉 To improve the financial health of the company

It’s often a cheaper and faster way to raise money compared to taking loans or launching a public offering.

🔹 3. Who Is Eligible for a Rights Issue? 🧾

You are eligible if:

• You own shares of the company before the record date
• Your shares are held in a demat account

📆 The company announces a record date, and if you hold the shares on that date, you get Rights Entitlements (RE) in your demat account.

🔹 4. What Are RE (Rights Entitlements) Shares? 🧩

RE means Rights Entitlement, it’s like a coupon or token that gives you the right to apply for the new shares.

• These RE shares appear in your demat account (e.g., REINFRA-RE).
• You can either use them to apply or sell them in the stock market.

🛑 Note: If you do nothing, the RE shares will expire and become worthless after a few days.

🔹 5. How to Apply for a Rights Issue? 🖥️

You can apply in two easy ways:

✅ A) Through Net Banking (ASBA Method)

1. Login to Net Banking

Go to your bank’s net banking portal (e.g., HDFC, ICICI, SBI, Axis, etc.)

2. Find ASBA Section

• Look for “ASBA” or “IPO / Rights Issue” under “Investments” or “eServices”.
• In some banks, it might be called “Online IPO” or “Apply IPO & Rights”.

3. Choose the Rights Issue

• Select the company offering the rights issue (e.g., “ABC Ltd Rights Issue”).
• Click Apply.

4. Fill in Details

• DP ID / Client ID (Demat account number)
• Number of shares (REs) you want to apply for
• Enter other details like PAN if asked.

5. Block Funds & Submit

💡 Your money stays in your account until the shares are allotted. If you don’t get allotment, funds are unblocked.

6. Check Status

• After submission, you’ll get a reference number.
• You can track the allotment later through the registrar or your demat account.

✅ B) Through Broker’s App (e.g., Zerodha, Groww, Upstox)

1. Open the app or website
2. Find the “Rights Issue” section
3. Click “Apply” and enter the number of shares
4. Authorize payment via UPI or net banking

💡 Tip: Make sure to apply before the last date mentioned in the email/notification.

🔹 6. What If You Don’t Want to Apply? ❌

If you don’t want to invest more money in the company, you can:

🔁 Sell the RE Shares:

• RE shares are tradable on the stock market for a few days
• You can sell them and get some money instead of letting them expire

📆 For example: If you received 100 RE shares and don’t want to apply, just sell them like any normal stock.

For example, suppose you held shares of a company that announced a rights issue and you received 100 RE (Rights Entitlement) shares in your demat account. If you’re not interested in applying for the rights shares, you don’t have to let those REs go to waste. Instead, you can sell them in the stock market—just like any regular stock. These RE shares are tradable for a limited time, usually 7–10 days. You’ll see a separate listing like “XYZ-RE” in your portfolio. By selling them, you can recover some value, rather than letting the REs expire worthless after the deadline

🛑 If you don’t sell or apply, the RE will automatically expire with zero value.

If you neither apply for the rights issue nor sell the RE (Rights Entitlement) shares within the given time frame, they will automatically expire and become worthless. That means you will lose the opportunity to either buy shares at a discounted price or earn money by selling your REs in the market. RE shares have a limited validity period, usually around 7 to 10 days, after which they are delisted. You won’t be able to use or trade them once the window closes. So, it’s important to take action either apply or sell before the expiry to avoid losing value.

📝 Quick Comparison:

🔹 7. How Is the Rights Issue Price Decided? 💹

The company usually offers the shares at a discount compared to the current market price to attract investors.

Example:

• Market Price: Rs200
• Rights Issue Price: Rs150
• You save Rs50 per share!

⚖️ But remember a lower price does not always mean a good deal. You should also check the company’s fundamentals.

🔹 8. Should You Apply or Not? 🤔

Here are some points to help you decide:

✅ Apply if:

• You trust the company’s future growth
• You want to increase your holding at a cheaper rate
• You understand the business and like the deal

❌ Don’t apply if:

• The company is in financial trouble
• The discount is too small
• You don’t want to invest more in that stock

Do your own research or consult a financial advisor before deciding.

🔹 9. Understanding Share Allocation in a Rights Issue

The number of rights issue shares you receive depends on the ratio declared by the company. For example, if the company announces a 1:4 rights issue, it means you’ll get 1 Rights Entitlement (RE) share for every 4 shares you already hold. So, if you own 200 shares, you’ll be eligible for 50 RE shares (200 ÷ 4 = 50). These RE shares will show up in your demat account automatically on or after the record date. You can then choose to apply for the new shares, sell the REs, or let them expire.

✅ Can You Sell REs and Apply for Rights Shares via Bank?

The Short Answer:

➡️ Yes, you can sell some of your Rights Entitlements (REs) and apply for the rest via your bank.

🧠 Here’s How It Works:

When you receive REs in your demat account, you have 3 options:

1. Apply for rights shares (fully or partially)
2. Sell your REs in the market
3. Do nothing (and let REs expire)

You can mix Option 1 and Option 2 — for example:

🔍 Example:

• You receive 100 REs (Rights Entitlements)
• You choose to:
  • Apply for 60 shares through your bank using ASBA
  • Sell the remaining 40 REs in the stock market

✅ Both are allowed
❌ But you cannot sell the same REs you have already used to apply

⚠️ Important Rules:

For example, if a company issues a rights offer in a 1:5 ratio and you hold 500 shares, you’ll receive 100 REs in your demat account. These REs give you the right to apply for 100 new shares at a discounted price. Suppose you don’t want to invest the full amount. In that case, you can sell 40 REs in the stock market (if RE trading is allowed) and apply for the remaining 60 shares through your bank’s net banking platform. The amount for 60 shares will be blocked in your account until allotment. It’s important to ensure that you don’t apply for more shares than the REs you hold.

If you Sell REs and still apply for the same quantity, your application will be rejected or partially accepted. Once sold, those REs no longer give you the right to apply. Therefore, check your RE balance before applying and sell only the portion you don’t plan to use. This way, you can benefit from both applying and selling REs  maximizing value without overcommitting funds.

Final Thoughts 🧠

Rights Issue is a great way for companies to raise funds and for investors to buy more shares at a lower price. But you must:

• Read the offer details carefully
• Apply before the closing date
• Or sell your RE if you’re not interested

✅ Always stay alert when your broker sends a Rights Issue notification. Missing the deadline means losing money or opportunity.

📌 FAQs

1. What is a Rights Issue?

A Rights Issue is a method by which a listed company offers additional shares to its existing shareholders at a discounted price, in a fixed ratio, to raise capital. It’s a time-bound offer.

❓2. What are Rights Entitlements (REs)?

Rights Entitlements (REs) are temporary securities credited to eligible shareholders’ demat accounts, representing their right to apply for shares in a rights issue. They are tradable on stock exchanges for a limited period.

❓3. How do I know if I’m eligible for a rights issue?

You are eligible if you hold the company’s shares as of the record date announced by the company. This is when your name must appear in the company’s register of shareholders.

❓4. Can I apply for a rights issue using my bank account?

Yes. You can apply using the ASBA facility through your net banking. Most Indian banks (like SBI, ICICI, HDFC) support ASBA for IPOs and rights issues.

❓5. Do I need to pay anything to receive REs?

No. REs are issued free of cost to eligible shareholders. However, if you apply for rights shares using REs, you’ll have to pay the issue price per share.

❓6. What happens if I do not apply for the rights issue?

If you don’t apply or sell your REs during the trading window, they will expire worthless after the closing date. You won’t lose your original shares, but you’ll miss the opportunity to gain new shares or earn from RE trading.

❓7. Can I sell my REs in the market?

Yes. REs are listed and tradable on NSE and BSE during a specific window (usually 5-7 trading days). You can sell them just like normal shares using your broker’s platform.

❓8. Can I apply for more shares than my entitlement?

Yes, you can apply for additional shares, but allotment beyond your entitlement is not guaranteed and depends on availability after all eligible entitlements are processed.

❓9. Will my existing shareholding be affected if I ignore the rights issue?

No, your existing shareholding remains unchanged. However, if you don’t participate and others do, your ownership percentage may dilute.

❓10. Where can I track my rights issue application status?

You can track the status on:

• Through your bank’s ASBA portal
• In your demat account, once shares are credited