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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks

In the context of equity share capital in India, what does a 'rights issue' primarily offer to existing shareholders?

A rights issue gives existing shareholders the right to subscribe to new shares in proportion to their current holding, usually at a price fixed by the company. It differs from a bonus issue, where shares are given free of cost.

  1. AThe right to buy new shares of the company in proportion to their existing holding, usually at a price set by the companyCorrect
  2. BThe right to receive bonus shares free of cost in proportion to holdings
  3. CThe right to sell their shares back to the company at a premium
  4. DThe right to convert their shares into debentures at a fixed ratio

Explanation

A rights issue offers existing shareholders the first opportunity to subscribe to new shares in proportion to their holdings, typically at a price decided by the company. Bonus shares are issued free, so that option describes a different corporate action. Buyback and conversion into debentures are not rights issue features.

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