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

In the context of equity shares, what does a 'rights issue' offer to existing shareholders?

A rights issue gives existing shareholders the option to subscribe to new shares in proportion to their current holding, usually at a price lower than the market price. It differs from a bonus issue, which is free, and from a buyback, where the company repurchases shares.

  1. AThe right to subscribe to additional shares in proportion to their holding, usually at a price below the market priceCorrect
  2. BThe right to exchange their shares for debentures of the company at par
  3. CThe right to receive bonus shares free of cost in proportion to holding
  4. DThe right to sell their shares back to the company at a fixed price

Explanation

A rights issue lets existing shareholders buy new shares in proportion to their existing holding, typically at a discount to market price. Bonus shares are issued free, so the third option describes a different corporate action. Buyback is a company offer to purchase shares, not a rights issue.

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