1. What are Rights Entitlements?
When a company wants to raise money, it sometimes gives its existing shareholders a chance to buy the company’s shares at a discounted price. This offer is called “rights issue”. To apply for that discounted offer, the company first gives temporary securities to existing shareholders in their demat account, which gives them a chance to apply for additional shares at a pre-decided price. These temporary securities are known as Rights Entitlements (RE).
Think of RE like a coupon that says:
“You have the right to buy extra shares at a cheaper price.”
- RE is not a real share, it’s just a right to buy shares later
- It comes in your demat account if you already hold that company’s shares
- It stays for a limited time only
- You can either:
- Use it → apply for the rights issue and buy discounted shares
- Sell it → just like a stock, you can sell RE on the market and earn that money
- Do nothing → then the RE expires and becomes zero
Let’s understand this with an example.
You own 100 shares of XYZ company.
XYZ announces a rights issue and gives 20% extra at discount.
So you receive 20 RE in your demat account.
Now you can:
- Pay money and convert those 20 RE into 20 new shares at discount
- Or sell those 20 RE on NSE/BSE like a stock and get cash
- Or ignore and lose the chance (RE will expire)
In short:
RE = a tradable right / ticket to buy discounted shares in India during a rights issue
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