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NISM-Series-VI: Depository Operations · Special Services - Public Offering / Corporate Actions

Rights Issue and Renunciation via Rights Entitlements in Depository Operations

Updated 11 October 2026 · Fact-checked

In a rights issue, a company offers new shares to existing shareholders in a fixed ratio on a record date. Depositories credit rights entitlements (REs) to eligible demat accounts. You can subscribe, renounce them on the exchange, or off-market, or let them lapse. Subscription uses application money and the allotted shares are credited in demat form.

Understand Rights Issue and Renunciation via Rights Entitlements

A rights issue lets a listed company raise money from its existing shareholders. It offers them new shares in a stated ratio, such as 1 new share for every 4 held, at a stated issue price. The offer is made to shareholders on a record date. Rights issues are a way to raise capital, so shareholders pay for the new shares.

In the current framework, the right to apply is held as a rights entitlement (RE). The RE is a separate security with its own ISIN. The depository credits REs to the demat accounts of eligible shareholders as on the record date, in proportion to their holding. The credit is made by the issuer through the depositories, so you do not need to apply to receive it. You can see it in your demat statement.

You have three choices. You can subscribe to some or all of your REs by paying the application money. You can renounce them, meaning you give up the right in favour of someone else. Or you can do nothing, and the REs lapse after the issue closes. Renunciation is done by selling REs on the stock exchange during the renunciation period, or by an off-market transfer to another demat account using the depository mechanism. The RE window has a trading period that closes before the issue closes, so you must act on time.

On subscription, the application is made through the ASBA facility or the issuer's online facility. The REs are debited from your demat account, and the new shares are allotted and credited to your demat account. Shares are issued only in dematerialised form to eligible holders, with some exceptions in the offer document. REs that are not subscribed or sold by the end of the issue lapse and are extinguished.

A bonus issue is different. Bonus shares are free and come from reserves. A rights issue needs payment, and the shareholder may choose to decline it. Exact timelines and eligibility details differ by issue, so rely on the offer document and the workbook for specific numbers.

Key formulas to remember

Rights entitlement ratio
REs credited = (Shares held on record date ÷ Shares in ratio base) × New shares in ratio, rounded as per the offer document
For a 1:4 ratio, a holding of 100 shares gives 25 REs. Fractions are dealt with as the offer document states.
Application money
Amount payable = Number of shares applied for × Issue price per share
Issue price may be payable in full or in part as per the terms. Check the terms.
Entitlement rule
Eligibility = Holding in demat account on record date
Only holders on the record date get REs. A later purchase does not give REs for that issue.
Choices for REs
Subscribe | Renounce (on-market or off-market) | Lapse
Unused REs lapse after the issue closes.

How to solve Rights Issue and Renunciation via Rights Entitlements questions

Use the same sequence for any question on rights entitlements and renunciation.

  1. 1Identify whether the question is about a rights issue or a bonus issue. Rights need payment; bonus is free.
  2. 2Find the record date and check whether the person held shares in demat form on that date.
  3. 3Compute the REs using the ratio. Apply the ratio to the holding on the record date.
  4. 4Decide the action: subscribe, renounce on the exchange, renounce off-market, or let lapse.
  5. 5Check the timing: renunciation (trading of REs) must be finished before its closing date, which is earlier than issue closing.
  6. 6For subscription, calculate the application money as shares applied × issue price.
  7. 7State what happens in the demat account: REs credited, REs debited on subscription or transfer, new shares credited on allotment.
  8. 8Pick the option that matches this flow and reject options that mix up bonus, split or physical issue.

Quickest way: Four-check shortcut for rights questions

When to use it: Use when the question is a short MCQ asking what happens or who gets REs.

  1. Check one: Is payment needed? If yes, it is a rights issue.
  2. Check two: Was the person a holder on the record date? If no, no REs.
  3. Check three: Are the REs an ISIN-based security in the demat account that can be sold or transferred? If yes, renunciation is possible.
  4. Check four: Unused REs lapse. No automatic subscription takes place.

Common mistakes in Rights Issue and Renunciation via Rights Entitlements

  • Treating a rights issue like a bonus issue

    Both give extra shares in a ratio, so they look alike.

    Fix: Remember that rights shares are paid for and the holder can decline; bonus shares are free and come from reserves.

  • Thinking buying shares after the record date gives REs

    Students ignore the record date.

    Fix: REs go only to those holding on the record date. A later buyer does not get them.

  • Assuming unsubscribed REs are subscribed automatically

    Students confuse it with a corporate benefit credited automatically.

    Fix: Subscription needs an application and payment. Unused REs lapse.

  • Believing REs cannot be sold

    Students think only shares trade.

    Fix: REs have their own ISIN and can be renounced by sale on the exchange or by off-market transfer during the permitted period.

  • Forgetting the trading window closes before the issue closes

    Students treat both dates as the same.

    Fix: The last date for renunciation is earlier than the issue closing date. Read the dates in the question carefully.

Worked examples

Example 1

A company announces a rights issue in the ratio 2 new shares for every 5 held, at ₹150 per share. You hold 250 shares on the record date. How many REs are credited and what is the amount payable if you subscribe in full?

Show the solution
  1. REs = (250 ÷ 5) × 2.
  2. 250 ÷ 5 = 50.
  3. 50 × 2 = 100 REs.
  4. Each RE entitles you to one share, so you can apply for 100 shares.
  5. Amount payable = 100 × ₹150 = ₹15,000.

Answer: 100 REs are credited and the amount payable is ₹15,000.

Example 2

Which is correct about rights entitlements in a demat rights issue? (a) They are credited only to those who buy after the record date (b) Unsubscribed REs are automatically converted into shares (c) REs can be renounced by sale on the exchange or by off-market transfer (d) REs are free of cost and need no application

Show the solution
  1. Option (a) is wrong because REs go to holders on the record date.
  2. Option (b) is wrong because subscription needs an application and payment.
  3. Option (d) describes a bonus issue, not rights.
  4. Option (c) is right because REs are a tradable security that can be renounced on-market or off-market during the period.

Answer: Option (c).

Exam tips

  • Expect questions that contrast rights and bonus issues. Learn the payment and choice difference.
  • Remember the record date rule: the holder on that date gets the REs.
  • Know the three choices: subscribe, renounce, or let lapse.
  • Read dates carefully. The renunciation window closes before the issue closes.
  • Use the workbook for exact timelines; do not guess numbers.

Practice questions from Special Services - Public Offering / Corporate Actions

Rights Issue and Renunciation via Rights Entitlements: frequently asked questions

What is a rights entitlement in a demat account?

It is a right to apply for new shares of a company in a stated ratio. It is credited to your demat account with its own ISIN if you hold shares on the record date.

How do I renounce a rights entitlement?

You can sell the REs on the stock exchange during the renunciation period. You can also transfer them off-market to another demat account through your DP.

What happens if I do nothing with my rights entitlement?

The REs lapse after the issue closes. You get no new shares and no payment for the unused REs.

What is the difference between a rights issue and a bonus issue?

In a rights issue, you pay for new shares and can choose to decline or sell the right. In a bonus issue, shares are given free out of reserves.