What Is Rights Entitlement In The Share Market?

The concept of the whole rights issue allows the shareholders to have the right to buy new shares with the proportion of their already existing shareholdings. Sometimes the rights that are issued are priced at a discounted market price.
The rights issue generally means the amount and the numbers of the new shares that can be allotted for subscriptions but only by the eligible shareholders. The concept of the whole rights entitlement is also almost the same but there is just a slight difference between both of them. That difference is just a slight exaggeration and it's in the rights entitlement the credit if the shares are given in the Demat account of those shareholders who are eligible.
According to the market regulator SEBI, it's up to a shareholder to not choose to subscribe to the rights issue if that's what he wants and let the right lapse. The other alternative that a shareholder can follow through is that he can, trade the right of the entitlement as a favor for another person and can be paid a certain amount of price for that. However, the right entitlement that doesn't get subscribed or settled or renounced before its closing date lapses.

Before the whole concept of rights entitlement was made electronic, it took almost 55-58 days for the listing of the rights entitlement up to date. However, now the whole process takes much lesser time as the timeline of the listing has come down to an approximate 31 days and that is easy and simple for companies and shareholders as these days quick work is called the best work.
The key benefit for the rights entitlement is that any investor or trader is allowed to buy the shares of a company easily from the secondary market. Let's take an example to make you understand a little better. Imagine that someone is a shareholder of axis and has 10 shares of the company to their name. Then that doesn't make them eligible for the rights entitlement. However, the other alternative is as simple as the above-mentioned shareholder can easily buy the right from the secondary market.
This opportunity in itself allows the shareholders to get a subscription for the right of axis and also in turn allowed them to purchase the shares and stocks at a much lower price.

By now we know that the rights entitlement is all credited to the Demat account if the shareholder of a company is eligible during the issue of rights. Investors who want to back out and do not hold the wish to apply for rights issues have also other options as they can sell their rights entitlement to other investors and shareholders who are willing and able and are wanting to buy the shares that they are getting at a discounted price. We can now figure out how or why people lose money in the rights entitlement process.
Investors and shareholders can now lose their money in the rights entitlement in two ways. Let's read further to know what are those two ways. First, it happens when a shareholder who was legit and capable and eligible leaves the rights entitlement and does not apply for the rights issue. Hence, by not applying for the rights issue they lose the value of their rights entitlement and their money. Rights entitlement are traded in the market for a very short amount of time and a very brief term before they lapse.
Secondly, the investors lose money in the rights entitlement because when some other investor purchases the RE from an eligible shareholder of the listed company and then doesn't apply or forgets to apply, whatever the reason might be, for the right of the issue before the actual deadline for the application ends. And in these two ways, there are times when the investors and the shareholders do lose their money and that is one of the biggest drawbacks that the process of rights entitlement hold.

With utmost sincerity, we hope that by now you might have understood the whole concept of rights issue and rights entitlement and how they both work. The business and any involvement of a shareholder or an investor with the share market always comes with a risk of losing their money or not making much profit. Hence, it is always said that no matter how careful you get, risks would be there, sometimes higher than other times.
Even so, with all the investment that the shareholders put, they have to have the knowledge and a solid base on whatever they are working and whatever their strategy is. It should also be remembered that the trading of rights entitlement begins on the date the issue was opened and then closes four days earlier to the closure of the issue.