What is the rights issue?

The rights issue is a company offering existing shareholders the rights to buy more shares at a discounted rate.

This simply means the rights issue allows existing shareholders to increase their stake in the company at a discount. This gives exclusive rights to existing shareholders to buy more shares, and this is done in ratios.

Suppose a company is offering rights issue in the ratio of 1:15, which means existing shareholders will have a chance to buy an extra share at a discounted rate for every 15 shares they hold.

When does a company offer a rights issue?

The rights issue is a way for companies to raise money from their existing shareholders. Since rights issues are non-dilutive, companies prefer this over issuing normal stocks in the open market.

Discounted rates induce company owners to buy more shares, building shareholders’ confidence.

How to become eligible for a rights issue?

You can become eligible for a rights issue if you own the shares on or before the company’s record date.

Subscribe to a rights issue only if you are satisfied with the company’s financial and expansion plans.