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What is Rights issue?

Rights Issue in Stock Market

What is Rights Issue

When the company gives shares to its shareholders at a discount to raise capital, this process is called the Rights issue of that company.Its under Section 81 of the company Act 1956.Rights issue are always for the shareholders who have that company share in their demat account, only those shareholders can apply for the Rights issue.
The rights issue the company always gives to its shareholders at a rate lower than the market rate.

Let's understand it by example
Example

Reliance Industries Rights Issue 2020

 Issue Opening Date 20 May 2020
 Issue Closing Date 3 June 2020

Reliance Rights Issue offer at 14 % discount  from market price.
In this right issue, the share holders cannot apply the shares as per their choice.For the rights issue, the company determines a ratio according to which the share holder apply for rights issue.

Example
Reliance Industries rights issue is 15:1. Reliance Industries is giving right issue of 1 share on 15 shares to its shareholders, means shareholders who own 15 shares of Reliance Industries will get right issue of one share.

Advantage of Rights Issue

a.)Its is an method of raising capital.
b.)Company offers right issue at a price which is lower than the market price of  the shares.
c.)Its beneficial for existing shareholder of company. 

Shareholder are free for decision

If you are already a shareholder, it is not necessary to buy shares in the Rights issue.You can use your rights.if they believe that they will give more benefit in future. It is not necessary to apply for the right issue if they feel that they can get the shares on same rate from the immediate market in the coming days, they can take it from current market.
On applying for a right issue, the share holder gives fund to the company, that's why if you think,the company is good and you will get benefit by investing in the rate that the share company is giving you, then you can apply for the rights issue But if you think that the market is going to fall in the future and you can get that share below that rate, then do not apply for the right issue.


Hope you understand this article What is Right Issues, if there is any question related to this article, then you can ask and comment.

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