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What Is a Rights Issue in the Stock Market? – A Beginner's Guide to Shareholder Rights

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A flat-style digital illustration showing a company issuing additional shares to the public, with charts, graphs, and investors representing the concept of a Follow-on Public Offer (FPO).

📢 What Is a Rights Issue in the Stock Market? – A Beginner's Guide to Shareholder Rights

In the world of investing, companies sometimes need extra funds to grow or reduce their debt. One way they do this is through a Rights Issue. But what exactly does that mean? Don’t worry—this guide breaks it down in the simplest terms for beginners.

🧩 What Is a Rights Issue?

A rights issue is when a listed company offers its existing shareholders the opportunity to buy additional shares—usually at a discounted price—before offering them to the public.

This means if you already own shares of a company, you get a “right” to buy more shares, usually in proportion to your current holdings. It’s a way for companies to raise money directly from their shareholders.

📌 Example:

Suppose you own 100 shares of a company. It announces a 1:5 rights issue at ₹80 per share (while the current market price is ₹100). This means you can buy 20 more shares at ₹80 each.

📦 Types of Rights Issues

  • Renounceable: You can trade or sell your rights to someone else in the market if you don’t wish to subscribe.
  • Non-renounceable: You must either use the rights yourself or let them lapse. They can’t be sold.

💡 Why Do Companies Issue Rights?

  • To raise capital for expansion or debt repayment
  • To maintain promoter’s control by giving current shareholders preference
  • It's quicker and often cheaper than launching a public offering

📈 What Should Investors Do?

As a shareholder, you have three choices:

  1. Subscribe: Buy the shares at the discounted price.
  2. Sell your rights (if renounceable): Earn from your entitlement without investing more.
  3. Ignore: Let your rights lapse (not usually advisable).

⚠️ Risks to Consider

  • Investing more money in a company that may be underperforming
  • Stock price may fall after the issue due to dilution
  • If you ignore the rights issue, your ownership percentage in the company may reduce

🔍 Where to Find Rights Issue Info?

Check the company’s filings on the NSE, BSE, or in your broker's app under "corporate actions."

✅ Final Words

A rights issue is an important decision point for shareholders. It can be an opportunity to invest more at a lower price, but only if the company has strong potential. Always analyze the reason behind the rights issue and the company’s future plans before participating.


Author: @nkit

📚 Join my Telegram channel for educational stock market insights and research:
👉 https://t.me/Investtrade_by_Ankit

⚠️ This blog is for learning purposes only. Please do your own research before making any investment decisions.

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