Rights Entitlement (RE) gained immense popularity ever since Reliance Industries had credited the rights entitlement directly to the shareholders’ Demat account in May 2020. SEBI had already made buying and selling rights entitlement easy in electronic form via Demat account in January 2020. With everything going rapidly digital, this comes in handy for the shareholders who do not want to step out and submit the physical form. Read on to know more about the rights entitlement.

What is Rights Entitlement?

When companies need more capital, they often raise it through existing shareholders via Rights Issue. It gives existing shareholders the right to buy new shares in proportion to their current holdings. And rights entitlement is the number of shares you are entitled to in the rights issue. For instance, in the case of ABC company, you have 100 shares, and the rights issue ratio is 1 share for every 4 shares held. Hence, you can receive 25 shares which will be your rights entitlement.

As per the new guidelines, the rights shares get temporarily credited to the shareholders’ Demat account. It gives them the right to apply for the rights issue or transfer their rights entitlements to other interested investors. These shares are credited in a different ISIN against the number of shares held by them.

Note: You should keep in mind that this transfer of shares under rights entitlement is temporary, so you need to apply for the rights issues based on the entitlement to get ownership.

Why rights entitlement?

Direct credit of rights entitlement into existing shareholders’ account under the new process offers the following benefits:

  • Removes the need to submit the form physically
  • Shareholders can directly transfer their rights if they don’t want to buy the rights shares
  • Brings transparency in the transfer of shares process
  • Interested investors can buy rights shares from the secondary market
  • Shareholders can know the value of the rights entitlement

How is it different from the rights issue?

A rights issue is a corporate action that a company takes to expand its business, increase its working capital, or clear its debts. But, rights entitlement is the shares offered in the ratio of the existing shares the shareholders hold.

What options do you have in rights entitlement?

If you have received shares in your Demat account as rights entitlement, you have 3 options:

  • Use your rights entitlement to buy and get the ownership of the shares.
  • Transfer your rights entitlement in part or full by trading on the stock exchange or off-market to earn a profit (Renunciation of rights issue). If you are not entitled to rights shares, you can buy them in the secondary market when existing shareholders begin selling them.
  • Do nothing to your rights entitlement and let the rights lapse.

You can select any path depending on the company’s future growth, your portfolio, the value of the rights shares, company overview, and other relevant information.

How can you apply for rights entitlement?

Follow the steps below to apply for the rights entitlement:

  • Go to the RTA website and apply for the rights issue
  • Make the payment through net banking or UPI

Alternatively, you can:

  • Click on ‘Apply Now’ in the email you received regarding your rights entitlement
  • It will redirect to the RTA website
  • Apply for the rights issue and make payment through net banking or UPI

Conclusion

The new process of rights entitlement has transformed and digitalized the old and time-consuming physical rights issue process. It has fast-tracked the system and brought more transparency to it. Rights entitlement provides a window of opportunity to buy shares at a discounted price or renounce rights at a higher price to earn good returns.