Corporate actions are an important part of investing, yet many retail investors find them confusing. One such corporate action that often raises questions is the rights issue, along with its associated concept called Rights Entitlements (REs). If you have ever seen REs credited to your demat account and wondered what to do next—or feared missing an opportunity—this guide is for you.
In this article, we’ll break down what rights issues and rights entitlements are, why companies use them, how they work in practice, and what they mean for shareholders. Whether you’re a beginner investor or someone with market experience, understanding REs can help you make informed decisions and avoid costly mistakes.
What Is a Rights Issue?
A rights issue is a way for a company to raise additional capital by offering new shares to its existing shareholders at a discounted price. The offer is made in a fixed ratio based on how many shares an investor already owns.
For example, if a company announces a 1:15 rights issue, it means a shareholder can buy 1 additional share for every 15 shares held on the record date.
Rights issues are commonly used to:
Fund business expansion
Reduce company debt
Strengthen the balance sheet
Support long-term growth plans
Unlike IPOs, rights issues primarily reward existing shareholders by giving them priority access to discounted shares.
What Are Rights Entitlements (REs)?
Simply put:
REs act as proof of your right to subscribe to discounted shares.
Key characteristics of REs:
Credited to shareholders based on holdings on the record date
Issued in a separate ISIN, different from equity shares
Tradable on stock exchanges (NSE and BSE)
Valid only for a limited time
If you don’t wish to apply for the rights issue, REs give you the option to sell (renounce) your entitlement instead of letting it lapse.
Why Are Rights Issues Important in Corporate Finance?
From a company’s perspective, rights issues are often preferred because:
They raise capital without bringing in new external investors
They help maintain existing ownership structure
They are faster and more cost-effective than public offerings
From an investor’s point of view:
Rights issues help avoid ownership dilution
Discounted pricing can improve long-term returns
REs create additional trading opportunities
In essence, rights issues balance the interests of both companies and shareholders.
How Rights Entitlements (REs) Work
Credit of REs
REs are credited to eligible shareholders’ demat accounts before the rights issue opens. To be eligible, shares must be purchased at least one trading day before the ex-date/record date.
Trading of REs
REs are traded on the equity segment of NSE and BSE with:
T+1 settlement
Trade-for-trade basis
No fixed price—market demand determines value
Trading starts with the opening of the rights issue and closes at least four days before the issue closes.
Applying for Rights Shares
Investors can apply using:
ASBA via net banking
RTA portals
Composite Application Form (CAF), where applicable
Only one application per demat account is allowed.
Practical Examples of Rights Issues and REs
Example 1: Existing Shareholder
You own 150 shares of a company that announces a 1:15 rights issue.
You receive 10 REs
You can apply for 10 discounted shares
Or sell the 10 REs in the market
Or apply partially and sell the rest
Example 2: Non-Shareholder
You did not own shares on the record date.
You buy REs from the market
You become a renouncee
You can now apply for the rights issue like any eligible shareholder
This flexibility makes REs unique among corporate actions.
Advantages and Disadvantages of Rights Issues
Advantages for Companies
Quick capital raising
Lower issuance costs
No loss of control
Strengthened balance sheet
Advantages for Investors
Opportunity to buy shares at a discount
Protection from dilution
Ability to sell REs for profit
Transparent and exchange-traded process
Disadvantages for Companies
Market may view rights issue as financial stress
Share price may decline temporarily
Risk of under-subscription
Disadvantages for Investors
REs lapse if not used or sold
Requires active tracking of deadlines
Price volatility in RE trading
Potential short-term dilution if not exercised
Frequently Asked Questions (FAQs) on Rights Entitlements (REs)
What are Rights Entitlements (REs)?
REs are temporary demat securities representing a shareholder’s eligibility to apply for a rights issue.
When are REs credited?
REs are credited before the opening date of the rights issue.
How are REs traded?
REs trade like equity shares on NSE and BSE with T+1 settlement.
When does RE trading start and end?
Trading starts with the issue opening and ends at least four days before issue closure.
Can non-shareholders apply for rights issues?
Yes, by purchasing REs from the secondary market.
What happens if I don’t sell or apply using REs?
REs will lapse after issue closure, and any premium paid will be lost.
Can REs be sold?
Yes, REs can be sold in the market or transferred off-market.
Is the price of REs fixed?
No, RE prices are determined by market demand and supply.
How many applications can be made per demat account?
Only one application per demat account is allowed.
Are REs taxed?
Yes. Sale of REs is taxed like equity:
STCG @ 20% if STT is paid
Slab rate if STT is not paid
What if I sell shares after the record date?
You are still eligible to receive REs.
Do I need to unpledge shares to receive REs?
No, pledged shares are also eligible.
Do REs guarantee share allotment?
You are guaranteed shares equal to your REs. Additional shares are subject to allotment.
What happens to fractional entitlements?
Fractional REs are rounded down, but investors can apply for additional shares.
Where can I find detailed RE information?
Refer to the Letter of Offer (LOO) sent by the RTA.
Conclusion: Key Takeaways for Investors
Rights issues and Rights Entitlements (REs) are powerful tools—if used correctly. They give investors flexibility, protection against dilution, and opportunities to enhance returns. However, they also demand attention and timely action.
To summarise:
Rights issues allow companies to raise capital efficiently
REs represent your eligibility to participate
You can apply, sell, or partially use REs
Ignoring REs leads to avoidable losses
For investors, the biggest lesson is simple:
Always track corporate actions in your demat account.
Understanding rights issues and REs not only improves your financial awareness but also ensures you never miss out on value that is rightfully yours as a shareholder.
