🌟 What is Rights Issue? In the world of stock markets, companies sometimes need extra money to expand their business, reduce debt, or fund new projects. One such method is called “Rights Issue”. 🔍 Definition: A Rights Issue is an offer given by a company to its existing shareholders to buy additional shares at a discounted price before the shares are offered to the public. 📝 Important Point: Only the current shareholders get this special right — no outsiders can buy these shares in the rights issue. 🎯 Why Companies Go for Rights Issue? ✔️ Need to raise money for growth ✔️ To reduce loans or debt ✔️ For new projects or expansion ✔️ To improve financial health of the company 📌 Simple Example to Understand Rights Issue: Imagine a company named Alpha Ltd. You are already a shareholder and hold 100 shares of Alpha Ltd. One day, the company announces a 1:5 Rights Issue at ₹80 per share (while the market price is ₹100). 👉 What does 1:5 mean? This means: For every 5 shares you own, you get a right to buy 1 additional share. Since you have 100 shares, you are eligible to buy: 100 ÷ 5 = 20 new shares. These 20 shares can be bought at ₹80 each instead of ₹100 (market price). Great deal, right? 🎉 So, if you buy all 20 shares: ✔️ Total cost = 20 × ₹80 = ₹1600 ✔️ Now you own 120 shares in total. 💡 What Options Do You Have in a Rights Issue? 1️⃣ Accept the Offer: Buy the additional shares and increase your holding. 2️⃣ Ignore the Offer: Do nothing. But your percentage shareholding will reduce because the total number of shares in the company will increase. 3️⃣ Sell Your Rights (Renunciation): If allowed, you can sell your right to someone else and earn money without investing. 📉 What is the Impact of Rights Issue? ✔️ On the Company: ✅ Raises fresh funds 💰 ✅ Reduces debt (if used for repayment) ✅ Strengthens balance sheet ✔️ On Shareholders: ✅ Opportunity to buy at discount 🤑 ✅ Protects your ownership percentage BUT — if you ignore the rights issue: 🚫 Your percentage in the company may decrease because others will buy the new shares. ✔️ On Share Price: Generally, after the rights issue: 📉 Share price may fall temporarily because more shares are available in the market (increase in supply). 🔍 Calculation: Theoretical Ex-Rights Price (TERP) Let’s understand this with our example: ✔️ You have 100 shares @ ₹100 each = ₹10,000 ✔️ You buy 20 shares @ ₹80 each = ₹1,600 ✔️ Total shares = 120 ✔️ Total cost = ₹11,600 So, new average price per share = ₹11,600 ÷ 120 = ₹96.67 (approx) ✅ After rights issue, the share price usually adjusts to this level. 🚦 Advantages of Rights Issue: 🌱 Cheaper shares for existing investors 🌱 No dilution of control if you participate 🌱 Flexible – you can accept, reject, or sell rights 🌱 Raises capital without increasing debt ⚠️ Risks & Disadvantages: ⚡ Price Dilution: If you don’t participate, your holding % reduces. ⚡ Temporary Fall in Share Price: Due to increased supply of shares. ⚡ No Guarantee of Long-term Benefit: If company uses funds poorly, it can harm future prospects. 🏁 Final Thoughts: 🔔 Rights Issue is a double-edged sword. If the company is strong and raising funds for the right reasons (like growth or debt reduction), it is a great opportunity for existing investors. But if the company is in trouble, the rights issue may signal distress. So, always check: ✔️ Why the company is raising funds ✔️ Future plans of the company ✔️ Your personal investment goals ✨ Key Takeaways: ✨ ✅ Rights Issue = Special offer to existing shareholders to buy extra shares at a discount. ✅ Your decision — Accept / Reject / Sell the Rights. ✅ Rights Issue impacts share price but can be beneficial in the long run if the company uses funds wisely. ✅ Don’t ignore such offers — evaluate carefully.