Rights Issue
An offer of new shares to existing shareholders in proportion to their holdings, usually at a discount to the market price.
Formula
Theoretical Ex-Rights Price = (Existing Shares x Cum-Rights Price + New Shares x Issue Price) / Total Shares After Issue
Unit
₹
In depth
A rights issue raises capital while giving existing holders the first opportunity to maintain their proportional ownership, which is why it dilutes only those who do not participate. The rights entitlement itself has value and can be renounced and sold on the exchange in India, so a shareholder unwilling to subscribe should sell the rights rather than let them lapse. Letting them lapse forfeits real money and accepts the dilution. The discount to market is a pricing device to ensure subscription and is not a gift, since the price adjusts to the theoretical ex-rights level.
Worked example
A 1:4 rights issue at ₹400 when the share trades at ₹600 gives a theoretical ex-rights price of (4 x 600 + 1 x 400) / 5 = ₹560. The right to subscribe is therefore worth about ₹40 per new share.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Rights Issue” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.