Rights Issue is a method through which a listed company raises additional capital by offering existing shareholders the right to purchase new shares at a discounted price. This allows investors to maintain their ownership proportion in the company while enabling the firm to raise funds for business expansion, debt reduction, or working capital needs.

In a rights issue, the company announces a specific ratio for shareholders — for example, 1:5, meaning one new share can be bought for every five shares held. The issue price is usually lower than the current market price, making it an attractive opportunity for shareholders. Investors who do not wish to participate can sell their rights entitlement on the stock exchange within the specified trading window.

This method benefits both the company and shareholders. The company raises funds without increasing debt, and existing investors get the first opportunity to increase their stake. For shareholders, it’s a chance to acquire shares at a lower price or profit by selling the rights. However, it’s essential to assess the company’s financial health, purpose of fundraising, and long-term prospects before subscribing.

From a regulatory perspective, SEBI (Securities and Exchange Board of India) governs the entire process to ensure transparency and protect investor interests. Companies must file a Letter of Offer with SEBI, and details such as record date, issue price, and closing date are publicly disclosed.

In summary, a rights issue is a strategic fundraising tool that strengthens a company’s capital structure while giving shareholders an equitable opportunity to participate in its growth. Understanding the terms, timelines, and potential impact on shareholding is key to making informed investment decisions.