Definition
Rights Entitlement (RE)
A rights entitlement is the tradable right given to existing shareholders to subscribe to a rights issue, which can itself be bought or sold.
When a company announces a rights issue, eligible shareholders receive REs credited to their demat accounts. If you don't wish to subscribe, you can renounce (sell) these REs on the exchange during the rights trading window; if you do, you apply using the REs to get the new shares.
REs trade for a short period and become worthless if neither used nor sold before the deadline. This SEBI-introduced mechanism ensures non-participating shareholders aren't left out of pocket from the dilution, since they can monetise their entitlement.
Related terms
- Ex-DateThe ex-date is the cut-off day from which a stock trades without the right to an upcoming corporate action like a dividend, bonus, or split.
- Rights IssueA rights issue offers existing shareholders the right to buy additional shares, usually at a discount, in proportion to their current holding.
- Follow-on Public Offer (FPO)An FPO is a public issue of shares by a company that is already listed, used to raise additional capital or let existing holders sell their stake.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.