Rights Issue Through Investor’s Perspective: A need of Today.
Rights Issue through Investor’s Perspective is an effort to attract the attention towards the investors who does not have the in depth knowledge about the Rights Issue.
At the time of bullish market, many Companies are raising funds from the market. The Companies are raising funds via different modes like IPO, Rights Issue, Issue of debentures etc.
At the time where investors are putting their money in the stock market, it should be very conscious for the investors to have the basic understanding about the fund raising mode in which they are investing.
Right now, the investors are investing their money in the different public issue without even knowing it’s basic concepts. Due to which they lose their big chunk of hard earned money in the process.
Today, we will discuss about the Rights Issue through Investor’s Perspective. We will discuss the most important points about Rights Issue to avoid any loss in the investing process.
WHAT IS RIGHTS ISSUE?
In Rights Issue, the Company gives its existing shareholders as on Record Date, a right to invest in its issue. The existing shareholders have rights to participate in the issue and paid the issue price and get the shares accordingly.
In the given process, the Company fix the certain ratio in which the shareholders as on record date are eligible to apply for the Right Issue.
For example, if the Company fix the ration as 1:1, then every shareholder holding one share as on record date have the Rights to participate in one Rights Equity Shares of the Company.
WHAT IS RIGHTS ENTITLEMENTS (RE)?
It is the most important concept in the whole Rights Issue as the investors are usually loses their money in the Rights Entitlement. So, please understand this very carefully.
Rights Entitlement (RE) is the Right that is given by the Company to its existing shareholders as on pre-specified Record Date in the certain ratio.
For example, if the ratio is 1:1, then the Company will give 01 Rights Entitlement (RE) to its existing shareholder for every one share hold as on Record Date.
HOW INVESTORS AS ON RECORD DATE GETS THEIR RIGHTS ENTITLEMENTS (RE)?
Usually, all the shareholder holding shares in demat account as on record date gets the Rights Entitlements (RE) from one day prior to the date opening of the Rights Issue.
In case, shareholder holding shares in physical form then the shareholder needs to provide his/her demat details to the Company before the closing of the Rights Issue period to get the Rights Entitlements (RE) in his/her demat account.
WHAT ARE THE BENEFITS OF HOLDING RIGHTS ENTITLEMENTS?
Rights Entitlements means the right to participate in the Rights Issue of the Company. If you do not hold the Rights Entitlements and still you apply for the Rights Issue of the Company then your Rights Issue will get rejected.
Rights Entitlements means if you are eligible for minimum number of Rights Issue shares to the extent you hold the number of Rights Entitlements. Please note that your Rights Issue application must be free from any default which leads to the rejection of the application
HOW TO USE RIGHTS ENTITLEMENTS (RE)?
If as an existing shareholders, you have been allotted the RE then you have two options:
- To apply for the Rights Issue of the Company;
- To sell the RE in the open market.
If you are not the existing shareholders as on record date then you need to purchase the RE from the open market to participate in the Rights Issue.
Please note that whether the Company allotted the RE to you and you did sell the RE or you purchased the same from the open market, in both the cases you need to apply for the Rights Issue as after the closing date of Rights Issue period, all the Rights Entitlement you hold will get expired and its value becomes zero.
WHY THE INVESTORS USUALLY LOSE THEIR MONEY IN RIGHTS ENTITLEMENTS?
Investors usually lose their money in the Rights Entitlements due to not having the proper knowledge about RE. There are some cases where investors tends to lose their hard earned money due to not having knowledge and proper facts about Rights Entitlements:
- INVESTOR DOESN’T KNOW HOW TO APPLY FOR THE RIGHTS ISSUE
The main reason investors lose their hard earned money that they do not read the Letter of Offer and they don’t even know how to apply for the Rights Issue of the Company. They normally purchased the Rights Entitlements (RE) from the open market and assumed that they applied for the Rights Issue of the Company.
After the closing of the Rights Issue period they gets to know that the RE they purchased has been expired and now the value of those REs becomes zero.
Even you cannot ask the RE expired amount from the Company as you did not make the payment to the Company in order to purchase those REs.
- INVESTORS DOES NOT KNOW THE DIFFERENCE BETWEEN RIGHTS ENTITLEMENTS (RE) AND RIGHTS EQUITY SHARES
Investor usually assumed the Equity and Rights Entitlements (RE) as same thing. You need to understand that Rights Entitlement is a right to participate in the Rights Issue which comes with the validity period and it gets expired after the closing of the Rights Issue period.
- INVESTOR NEEDS TO APPY FOR THE RIGHTS ISSUE BEFORE CLOSING OF RIGHTS ISSUE
Investors holding Rights Entitlements (RE) needs to apply for the Rights Issue of the Company before closing of the Rights Issue otherwise, their RE will get expired after closing of the Rights Issue.
HOW TO APPLY FOR THE RIGHTS ISSUE OF THE COMPANY?
The Company provides the modes for applying for the Rights Issue of the Company in its Letter of Offer. The most common modes of applying for the Rights Issue are given as under:
- R-WAP Facility: Registrar Web based Application Platform (R-WAP) facility provided by RTA of the Company to apply for the Rights Issue via different banking payment modes.
- ASBA Facility: You can also pay either through online or offline ASBA facility.
- Payment Slip: You can also pay through Demand Draft or Cheque while submitting the payment slips in the given collection centers provided by the Company.
- Three in One Account: You can also pay through your 03 in 01 bank-trading-demat account.
There are many investors who lost their money as they did not know about the basic concepts of the Rights Issue. So, invest your hard earned money diligently. This is all about Rights Issue through Investor’s Perspective.
In case you need any expert advice for the Rights Issue, then you can contact us at [email protected]