Understanding Rights Issue

Rights issues can be your gateway to expand your holdings in a company. Whether you’re a seasoned investor or a newcomer to the stock market, understanding the process of applying and knowing what is the rights issue is essential. This comprehensive guide will walk you through the steps to swiftly navigate the application process and make informed decisions. Read on to unravel the world of rights issues and harness their potential for financial growth.

Topics Covered

• What is a Rights Issue?
• Why Does a Company Announce Rights Issue?
• How to Apply for Rights Issues?
• How Do Rights Issues Work?
• In a Nutshell

What is a Rights Issue?

Companies often offer existing shareholders an opportunity to purchase additional shares at a discounted rate. The process of selling additional stocks at a discounted rate to existing shareholders is known as a rights issue. Existing shareholders are given preference for purchasing new shares through a rights issue. The price of shares in a rights issue will be less than the market price. Companies raise additional funding through a rights issue. The additional funding could be for a new project, equipment, or any other purpose. Now that you understand what is a right issue, let us discuss how to apply for one.

Why Does a Company Announce Rights Issue?

A company usually announces a rights issue to raise additional funding. The funding could be for a new project, debt repayments, a trust fund, or any other purpose. Many companies notify existing shareholders about the purpose of raising funding through a rights issue. In some cases, a company might announce a rights issue to secure funding for the future. A rights issue also allows existing shareholders to grab additional shares.

How to Apply for Rights Issues?

Before launching a rights issue, the company informs the investors about the corporate action. Companies will provide existing investors with rights entitlement. These are temporary Demat securities allowing investors to participate in a rights issue. Rights entitlement is reflected in your Demat account. The eligibility for rights shares is based on the number of shares held by an investor to date. If you wish to ignore rights entitlement available in your Demat account, they will automatically expire.

Investors must know how to apply for right issue. There are two ways of applying for a rights issue, through ASBA (Application Supported by Blocked Amount) or RTA (Registrar and Transfer Agent). You cannot apply for a rights issue without knowing the two ways in detail. Let us discuss the ways to apply for a rights issue in detail:

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Via ASBA or Net Banking Process

Your bank or financial institution can help you apply for a rights issue. Here is the step-by-step process to apply for a rights issue via ASBA:

• Collect information regarding the rights issue, including the deadline.
• Visit the net banking portal of your financial institution. Login into the net banking portal by providing your credentials.
• Find the rights issue section on your net banking portal.
• There might be a list of available rights issues from different companies. Select a rights issue you wish to apply for.
• Submit the rights issue application with accurate details. You will provide details like the number of shares to be purchased and the subscription price.
• Authorise the payment for the number of shares applied in the rights issue.
• The stated amount will be blocked/reserved by your bank. The amount is deducted from your account when your rights issue application is approved.

Via RTA

Now that you understand how to apply for right issue via net banking let us discuss how to do it via RTA. It is beneficial for investors who want to apply for a rights issue offline. Here is the step-by-step process to apply for a rights issue via RTA:

• Connect with the company’s RTA and acquire a CAF (Composite Application Form). You might also find it on the company’s official website.
• Complete the CAF and submit it to the RTA with a cheque or demand draft. Some companies have a partner bank where the application form can be submitted, usually a SCSB (Self-Certified Syndicate Bank).
• Wait for approval from the rights issuer. Upon allotment, you will receive your rights shares.

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How Do Rights Issues Work?

After understanding what is rights issue, let us discuss its working. A rights issue starts from the day a company announces additional shares for existing shareholders at a discounted rate. Here is the step-by-step process showing how a rights issue works:

• The company announces an upcoming rights issue to existing shareholders. It also announces the subscription price, deadline, and other essential details to investors.
• Shareholders holding stocks till a given date or period are eligible for the rights issue.
• Investors who are eligible start applying for the rights issue. Some investors apply for the rights issue via net banking, while others do it through RTA.
• Depending on their holdings, the company might limit the number of shares an investor can buy.
• The company might allow existing shareholders to apply for more shares in a rights issue. It happens when there are fewer subscriptions than the number of shares issued in the market.
• After the closure of the rights issue, the company starts the allotment process.
• The company can use the funds raised from a rights issue for a predetermined reason.

In a Nutshell

Mastering the art of applying for rights issues empowers you to seize potential investment opportunities and enhance your portfolio. You can make informed financial decisions by understanding the concept of rights issues, their significance, and the application process.

For a seamless rights issue experience, consider leveraging the expertise of Religare Broking. With their user-friendly platform and expert guidance, you can navigate the intricacies of rights issue applications effortlessly. Embrace the world of rights issues and harness their potential for financial growth with confidence, backed by the support of Religare Broking. Your path to maximising investment potential starts here.

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