A Rights Issue is an opportunity extended to existing shareholders to buy more shares of the company at a discounted rate within a specific time frame. Unlike an Initial Public Offering (IPO), a rights issue is exclusively offered to current shareholders in proportion to their current holdings and isn’t available to the general public.

Shareholders who qualify can choose to subscribe to the rights issue partially or in full. Alternatively, they can choose not to participate and let the rights expire, or they can transfer their rights to purchase additional shares to others. This transfer process is done through trading rights entitlements on a stock exchange, similar to how regular equity shares are traded. This process is often referred to as ‘renunciation of rights issue’.

Participating in a rights issue can be advantageous for eligible shareholders as it allows them to acquire more shares at a discounted price compared to the prevailing market rates. Unlike bonus shares, which are distributed free of cost, rights issues involve a cost, so it’s important for shareholders to consider the implications before making a decision.