Rights Issue Complete Guide: Rights Entitlements (RE), Trading & How to Apply

A Rights Issue is an invitation by an already listed public company (e.g. Reliance Industries, Tata Motors, L&T, Suzlon) to its existing shareholders to purchase additional new equity shares directly from the company. These shares are typically offered at a substantial discount to the prevailing market price, proportional to existing holdings (the Rights Ratio).

1. Rights Entitlements (RE) & The Record Date

Under SEBI regulations, Rights Issues operate through electronic Rights Entitlements (REs) credited directly to demat accounts:

  • Record Date: The cut-off date decided by the company. To be eligible for Rights Entitlements, you must own the company's shares in your demat account on the record date (meaning you must buy at least 1 trading day before the ex-date).
  • Entitlement Ratio: Expressed as 'X:Y', meaning you are entitled to X new rights shares for every Y existing equity shares held. For example, a 1:4 rights issue grants 25 Rights Entitlements to an investor holding 100 equity shares.
  • Demat Credit of REs: Before the issue opening date, the registrar credits temporary ISIN shares (e.g., RELIANCE-RE) into eligible shareholders' demat accounts.

2. The 3 Options for Rights Entitlement Holders

When RE shares appear in your demat account, you have three distinct choices:

  1. Apply for Rights Shares (Subscribe): Pay the issue price per share and convert your REs into permanent equity shares. You can also apply for additional shares beyond your entitlement.
  2. Sell / Renounce RE on the Stock Exchange: If you do not want to invest more capital, you can sell your REs on the NSE/BSE during the RE Trading Window just like regular stocks to lock in cash profit.
  3. Do Nothing (Lapse): Danger! If you neither apply nor sell your REs before the trading/issue deadline, the REs expire worthless and are extinguished by the depository, leading to capital loss and equity dilution.

3. Rights Entitlement (RE) Theoretical Price Calculation

The fair intrinsic market value of an RE is calculated using the difference between the prevailing stock price and the discounted rights issue price:

Theoretical Ex-Rights Price (TERP) = [(Existing Shares × Market Price) + (New Rights Shares × Rights Issue Price)] ÷ Total Post-Issue Shares

Theoretical Value of RE = Underlying Stock Current Market Price − Rights Issue Offer Price

4. How to Apply for Rights Shares (ASBA & Net Banking)

  • Net Banking ASBA: Most major banks (HDFC, SBI, ICICI, Axis, Kotak) offer a dedicated Rights Issue ASBA tab under Net Banking > Investments > IPO/e-Rights. Select the issue, enter your DP ID, Pan, and number of shares to apply, and block funds.
  • Registrar R-WAP Portal: Registrars (KFinTech, Link Intime, Bigshare) often provide a web-based Application Platform (R-WAP) where investors can validate their PAN/DP and pay using UPI or internet banking.

5. Taxation of Rights Entitlements & Shares

Selling REs on Exchange: Capital gains realized from selling REs in the secondary market are treated as Short-Term Capital Gains (STCG) taxed as per your income tax slab, with the cost of acquisition deemed to be zero for original allottees.

Subscribing to Rights Shares: The cost of acquisition of the allotted shares equals the rights issue price paid. The holding period for calculating LTCG (12.5%) vs STCG (20%) begins on the date of share allotment.

Track live announcements, ratios, and schedules on our Rights Issues Directory, check live bidding demand on Rights Issue Subscription, and view upcoming record dates on the Rights Issue Calendar.

Frequently Asked Questions

What happens if I ignore the Rights Entitlement (RE) in my demat account?

If you do not apply for rights shares or sell your REs on the stock exchange before the RE trading window closes, the REs will permanently lapse with zero value. Your ownership percentage in the company will also be diluted.

Can I apply for more shares than my entitlement ratio?

Yes. You can apply for additional rights shares over and above your entitlement. If other shareholders renounce or fail to subscribe to their quota, the remaining unexercised shares are allotted proportionately to applicants seeking additional shares.

Can an investor who is not an existing shareholder buy REs and apply?

Yes! Any market participant can buy REs from the secondary market during the trading window and then submit an application via ASBA to receive shares at the discounted rights issue price.

Last updated 2026-10-25. Information only, not investment advice.