NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks
Which of the following best describes a 'rights issue' of equity shares by a listed company?
A rights issue offers new shares only to existing shareholders in proportion to the shares they already hold, generally at a price fixed by the company. It differs from an IPO, a bonus issue or an institutional placement, which are not based on existing holdings.
- AShares offered only to existing shareholders in proportion to their holdings, usually at a price set by the companyCorrect
- BShares offered to the general public for the first time through an IPO
- CShares allotted to employees free of cost as a reward
- DShares issued to a few institutional buyers without any shareholder entitlement
Explanation
In a rights issue, the company offers new shares to existing shareholders in a fixed ratio to their current holding. An IPO is a first-time public offer, and institutional placement does not depend on existing holdings. Free allotment to employees is not a rights issue.
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