About Rights Issue

What Is Rights Issue?

If the company requires more cash flow to their business, they will rise money from the public using rights issue

A rights issue, is an issue of shares to the existing shareholders at discount price, which is less than market price at specified period of time

The existing shareholders may exercise the following rights

• Buying all the shares offered by company at deep discounts
  
• Ignore shares buying from the company
  
• Sell your rights to others based on ex-rights - market value to get capital gain

Example:
"A" is person holding x shares of 100 @ 100 RS each, if the rights issued & the company announced at 55 rupees for 30 shares for who held every 100 shares

So now the shareholder can buy at 55 of 30 shares and reap profit from the market price of 100 each, he can sell those shares in the market @ 100 Rs each along with his exiting shares (total 130 shares)


If the rights are issued? What the investor need to do?

The investor can retain his holding position until rights issue date, the share price will go up, up to rights issue date

If the investor bought the existing company at low price, then buy at offer price, if you bought at higher price please avoid it

After announcing the rights issue date, the share value will go down, the reason is more shares are added & price will be diluted and will come down