A Rights Issue is a method by which a listed company raises additional capital by offering new shares to its existing shareholders. These shares are offered in proportion to the number of shares already held by them and usually at a price lower than the current market price.

Only shareholders whose names appear on the record date are eligible to apply for the Rights Issue. This method helps companies raise funds without involving new investors.

In simple terms, Rights Issue means giving “rights” to existing shareholders to buy additional shares before they are offered to anyone else.

Shareholders have three choices:

1. Subscribe to the Rights Issue
2. Ignore the offer
3. Renounce or sell the rights (if renunciation is allowed)

Rights Issues are commonly used by companies to strengthen their balance sheet, repay debt, or fund expansion plans.

Rights Issue Example

Suppose:

• A company announces a Rights Issue in the ratio of 1:4
• Issue price: ₹100 per share
• Current market price: ₹150 per share

If an investor holds 400 shares, they are eligible to buy:

• 100 additional shares (400 ÷ 4)

If the investor subscribes, they pay ₹10,000 and receive 100 new shares, benefiting from the discounted price.

Difference Between Rights Issue and IPO

Basis	Right Issue	IPO
Eligible Investors	Existing shareholders only	Public investors
Purpose	Raise capital from current owners	List company & raise capital
Pricing	Usually at a discount	Market-driven
Ownership Dilution	Minimal if subscribed	Significant
Company Status	Already listed	First-time listing

A Rights Issue does not change the listed status of a company, whereas an IPO marks the company’s entry into the stock market.

Difference Between Rights Issue and FPO

Basis	Right Issue	FPO
Eligible Investors	Existing shareholders	Public & existing investors
Pricing	Discounted price	Market-based price
Preference	Shareholder-first approach	Open market approach
Ownership Impact	Limited dilution	Higher dilution
Risk Level	Lower for shareholders	Higher market risk

An FPO is similar to an IPO but conducted by an already listed company, while a Rights Issue is exclusively for existing shareholders.

Key Advantages of Right Issue

• Lower issue price benefits shareholders
• Maintains ownership control
• Faster capital-raising method
• Signals confidence in existing investors

Dates, Entitlement & Process (Rights Issue record date meaning)

Tax on Rights Issue shares

Rights Issue allotment