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

In a rights issue of 1 share for every 4 held at a price of Rs 100, a shareholder with 800 shares decides not to apply and does not renounce the entitlement. What happens to the rights entitlement (RE) credited to his demat account?

The rights entitlement lapses once the rights issue closes, and he receives no shares for it. Subscription is optional, so unless the shareholder applies or renounces the entitlement, nothing is allotted and no money is debited automatically.

  1. AIt lapses after the issue closes and he gets no shares for itCorrect
  2. BThe shares are automatically allotted and the amount debited from his bank
  3. CThe entitlement converts into bonus shares
  4. DThe DP must apply on his behalf at the issue price

Explanation

Rights entitlements of 800/4 = 200 are credited to the demat account. Applying is optional; if the holder neither subscribes nor sells the RE before the issue closes, the entitlement lapses. No automatic application is made and no bonus shares arise.

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