How to Apply for a Rights Issue Online: A Simple Guide for Investors

When a company wants to raise additional funds or capital, it may offer its present shareholders the opportunity to buy additional shares through a rights issue. These shares are offered to the shareholders at a pre-set ratio and price decided by the company.

For people who invest, understanding the process of applying for a rights issue through a demat account, the Rights Entitlements (REs), the process to apply, and the important dates before making any decision to buy the shares is very important.

This blog explains how to apply for a rights issue, how the Rights Entitlements work and how people can apply using ASBA or online banking.

What Is a Rights Issue?

A rights issue gives existing shareholders the option to buy additional shares from the company. This offer is generally made by the company based on the number of shares held by shareholders on a particular date, known as the record date.

Suppose ABC Ltd. announces a rights issue in the ratio of 1:5; in such case, an existing shareholder can apply for 1 rights share for every 5 shares already held, as per the terms and conditions of the rights issue.

The rights shares are usually offered at a predetermined price. However, investors should always evaluate the company’s growth prospects, financial position and issue price before applying for the shares.

What Are Rights Entitlements (REs)?

Rights Entitlements (REs) are announced by the company offering a right issue to its existing eligible shareholders in their demat accounts. It provides the right to eligible shareholders to apply for a specified number of shares subject to the term of the rights issue. Right Entitlements (REs) may also be traded on the stock exchange during the specified trading period allowed by the company, which gives flexibility to shareholders to renounce (or sell) the REs if they do not want to subscribe to the entire entitlement.

An investor can generally:

• Apply for the rights shares using the REs.
• Apply for additional shares, subject to the terms of the issue.
• Renounce REs online by selling or transferring the REs during the permitted period.
• Take no action, in which case the REs may lapse after the applicable deadline.

Investors should remember that REs are different from the actual rights shares. Holding an RE does not automatically mean that the rights shares have been allotted.

How to Check Rights Issue Record Date and Entitlement Ratio

Before applying, investors should check the key details of the rights issue.

The record date is used to determine which shareholders are eligible to receive Rights Entitlements, subject to the terms of the issue. Investors should also check the entitlement ratio, issue price, issue opening and closing dates, RE trading period and application deadline.

Investors can check the company’s official rights issue documents and relevant stock exchange disclosures for details about the record date, entitlement ratio, issue price and other important terms.

How to Apply for a Rights Issue Online

The process for applying for rights shares can vary depending on the issue and the application facility available. In general, investors can follow these steps:

Step 1: Check Your Rights Entitlement

Rights Entitlements can be checked after logging in to the demat or broker account to confirm whether they have been credited to the investor.

Step 2: Choose the Application Method

The investor can apply for the Rights Issue through any of the application methods provided for the issue:

1. ASBA (Application Supported by Blocked Amount)
2. Registrar & Transfer Agent (RTA) Portal

Note: The available application methods may vary depending on the specific Rights Issue.

Step 3: Submit Your Application

The investor should submit the relevant application by providing the requisite details, such as the number of rights shares they want to apply for and relevant bank and demat details.

If an investor applies through ASBA, the requisite amount of the application is blocked in the bank account instead of an instant transfer to the company.

Step 4: Ensure Sufficient Funds

The investor should ensure the availability of sufficient funds in their linked bank account required to cover the application amount.

The amount will be used according to the applicable process of ASBA and subject to the terms & conditions of the rights issue.

How to Apply for Rights Shares via Net Banking

Investors who are using the ASBA facility to apply for the rights issue use net banking portal of the participating bank.

The steps may be different as per the portal of the bank, but generally involve:

• Log in to your net banking account.
• Go to the IPO/ASBA/Rights Issue section, depending on how the bank labels the facility.
• Select the relevant rights issue.
• Enter the required application details, including details of the investor’s demat account and the number of shares applied for.
• Verify the application details and submit the application.

Before submitting, carefully check the number of shares, application amount and other details. Investors should follow the instructions displayed by their respective bank.

Rights Issue Application Through ASBA

A rights issue application through ASBA allows investors to apply by blocking the required application amount in their bank account.

The blocked amount is generally not debited immediately and is handled according to the applicable ASBA process. If the shares are not allotted or the full amount is not required, the relevant amount is released or unblocked as per the applicable rules.

Investors should check whether ASBA is available for the particular rights issue and follow the instructions provided in the issue documents.

How to Renounce Rights Entitlement Online

Not every investor may want to subscribe to their full entitlement. In such cases, an investor usually has an option to renounce Rights Entitlement online by selling or transferring the REs during the specified RE trading period, subject to the terms of the issue.

For example, an investor entitled to 500 rights shares who does not wish to subscribe may choose to sell or transfer the corresponding REs during the permitted trading window.

RE trading is available only for a specified period. Therefore, investors should check the opening and closing dates and take action within the applicable timeline.

If the REs are neither used nor renounced within the specified period, they may lapse and lose their value.

What Should Investors Check Before Applying?

Before applying for a rights issue, investors should review the following:

• Rights issue price
• Record date
• Rights Entitlement ratio
• Issue opening and closing dates
• RE trading period
• Last date for application
• Company’s financial performance
• Purpose of the fund-raising
• Terms and conditions mentioned in the offer documents

Investors should also assess the company’s fundamentals, valuation and their own financial goals. A rights issue is not automatically a profitable opportunity simply because shares are offered at a particular price.

Conclusion

A rights issue gives existing shareholders an opportunity to participate in a company’s fund-raising exercise. With online facilities, the process of applying for rights shares is relatively straightforward.

Whether an investor chooses to apply through ASBA, use net banking, apply through an available online rights issue facility or renounce Rights Entitlement online, understanding the applicable process and deadlines is important.

Disclaimer: The information provided in this article is for educational and informational purposes only and should not be construed as investment advice or a recommendation to buy, sell, or hold any securities.

Investors should carefully read all relevant offer documents and other applicable disclosures and, where appropriate, consult a SEBI-registered investment adviser before making any investment decision.

Share India Securities Limited does not guarantee or assure any returns from investments in the securities market. Investors should make investment decisions based on their own assessment of the risks involved and their financial objectives.