Rights Issues and Rights Entitlements (RE) - FAQs
Q. Will I be eligible for the rights issue if I purchase shares on the ex-date?
No, you should have purchased the shares before the ex-date to be eligible for the rights issue.
Q. Will I be eligible for the rights issue if I sell the shares on the ex-date?
Yes, if you have sold your shares after the ex-date then you are entitled to receive the RE. It will be credited to your broker on your behalf and the broker will then credit them to you.
Q. What about RE for shares that are pledged with broker?
The broker will receive the RE in their demat account and subsequently be able to make an off-market transfer to the respective client accounts. So, the client will receive the RE even if they do not unpledge their holdings.
Q. I am getting a Third Party Verification error on the RTA's portal. What can I do?
You are maybe using a bank account where your name is misspelled. You can either use a different bank account of yours or use net banking ASBA if your bank allows it.
Q. During the application on R-WAP, I am unable to see the REs I’ve purchased. Why?
The RTA is only showing the eligibility as on record date. They do not have systems in place to reconcile the records of purchased REs in real-time. You can apply for your purchased REs and the RTA will check whether you have the requisite number of REs when they are performing allotment.
Q. What will happen to my purchased holding of RE shares if I do not apply for the online right issue?
Your REs will lapse and you will lose the premium paid to acquire them/The RE will be in the form of temporary demat securities which will lapse if not renounced/exercised once the trading window is closed.
Q. While applying for rights shares, it shows 'Please enter your correct DPID or client ID'?
You need to ensure that you’re using the 16-digit ID. To access your DP-ID, read this.
Q. What is the difference between: “I am a shareholder as on Record Date and undertake to hold RE till issue closing date” and " I am renouncee and hold rights entitlement in valid demat account to hold RE till issue closing date". Which option would I have to choose in that case?
If you’re buying REs from the secondary market, you’re buying it from someone who is renouncing his right. The seller would be the renouncer and the buyer would be renouncee. If you were an eligible investor and had at least X number of shares as on the record date, you’ll need to select the share-holder option.
Q. I don’t have the shares but bought REs, am I still eligible to apply for the rights issue?
In case you have bought REs but don’t have shares, you’re still eligible for the rights issue. You may apply for the rights shares either through the RTA’s portal or via net banking ASBA if your bank allows it. If you don’t take any action, and let the REs remain in your Zerodha account, they will lapse after the issue.
Q. Will the rights entitlement automatically be shown on kite holdings. Will I be able to sell it?
Once the REs are credited to your account, you will be able to see and sell them like normal cash market scrips.
Q. What would be the expiry date and time?
The REs will theoretically lapse on issue closure and should be removed from your demat account once the Registrar and Transfer Agent (RTA) has processed all the applications (which happens within a few days from issue closure).
Q. The company has announced a rights issue in the ratio of 1:15. If I have 10 shares of the company in my Zerodha account and 5 shares in my ICICI account, am I eligible for exercising the rights?
The RTA does a folio wise check for the eligibility. Although the same PAN would be mapped to both your demat accounts, the shares would be held in separate folios in the RTA’s records. This means that you will not receive the rights entitlements in a scenario where you have 10 shares in one demat account and 5 shares in another.
Q. I cannot see the exact link where I have to fill up the details and pay for the Rights Issue.
The RTA will put up the exact link on their website once the issue is live. The same goes for the banks which will support the issue.
Q. Can I sell the shares on the record date and still get the rights issue benefit?
If you had the shares in your holdings on the record date, even if you sell on the record date you’ll still be eligible to apply for the rights.
Q. What if someone sells his REs and then applies for the rights issue? How will the RTA do it?
The RTA will collect your demat account details and then check for the REs before allotment.
Q. Should I unpledge the shares to receive REs and be eligible for the rights issue?
The REs will be credited to your demat account, you need not unpledge.
Q. At what price can I sell my REs in the market?
You can sell the REs at a price someone’s willing to pay for it. Market forces will determine the price at which the REs will trade.
Q. What will happen to my RE’s if I do not sell them?
The REs will get lapsed and will be removed from your holdings, You will lose the premium, if any, paid to acquire those REs.
Q. I have X number of shares and I’ve applied for Y more apart from my eligible 1 entitlement. In this case, will I actually be considered for additional shares? I’ve paid the initial amount to RTA. If not eligible for additional shares will they refund to my registered bank account?
The RTA can consider you for additional allotment depending upon the issue subscription. The amount you’ve paid is kept in an escrow account maintained by RTA and will be refunded if the allotment is not made (This is how IPO subscriptions would also work before ASBA).
Q. What does that renouncee signify here? I am not renouncing my rights instead I wish to opt for more rights which I have brought.
If you’re buying REs from the secondary market, you’re buying it from someone who is renouncing his right. The seller would be the renouncer and the buyer would be renouncee.
Q. How can NRIs buy the REs, since they cannot pay through RTA?
If your bank allows ASBA through net banking, you should be able to apply as an NRI.
Q. Let’s say I am purchasing the REs from the market today. I can apply directly via ASBA or through the RTA on the web?
Yes, you will be able to either apply via ASBA or directly through the RTA.
Q. Do all the RE, will get a share or it’ll be like subscribing to IPO (lottery system)?
If you have X REs, and you apply for X+Y shares. You will get X right shares since you’re eligible. For the remaining Y, there will be a lottery.
Q. Would I have to wait for these REs to be credited to my account to be able to apply for the Rights issue?
The RTA will check the demat account for REs during allotment. However, it is asking the investors to declare whether they already have the REs or have purchased it. There isn’t a third option which say you will purchase the REs within the RE trading period.
Q. What is the tax treatment in case of the sale of REs?
The taxation of right shares sold would be same as in case of sale of equity shares:
If STT is paid:
STCG - 15% under Sec 111A
LTCG - 10% in excess of Rs. 1 lac under Sec 112A
If STT is not paid:
STCG - slab rate
LTCG - 10% Without Indexation
Q. I bought some RE units today in 3 transactions (5 units each time). Should I have to place as many orders on RTA website or just one consolidated order for RE units is enough?
You can place one consolidated order for all the REs purchased.
Q. Please clarify whether multiple applications allowed?
RTA has informed that multiple applications are not allowed, multiple applications are liable to get rejected.
Q. I am getting an error on the RTA's website - "Details do not exist in Record Date."
If you have purchased RE from the secondary market then try applying under the ‘renouncee’ category.
Q. What will happen to the amount if I don't receive an allotment?
The money for any shares not allotted to you will be credited to your bank account by the RTA after the process is complete.
Q. Can I make the payment from the other bank as this bank fulfill both the criteria of a single account holder and residential bank account. Can I change the bank details?
You can make a payment from any bank account as long as you’re the registered account holder. The RTA performs a penny drop check to verify the account holder’s name. The third-party bank account restriction implies that you cannot use someone else’s bank account to pay for your application.
Q. I don’t have any securities on the record date, can I still purchase RE through Zerodha trading platform and then buy the shares against the RE?
Yes, you can purchase the REs till the RE window closure date and apply before the rights issue closes.
Q. Since my bank account is not automatically mapped, I’m trying to pay through a different account. However, in spite of it being my account, I get an error “3rd party validation failed”. What could be the reason?
If you’re using a bank account where you’re the registered account holder, possible reasons could include a misspelling of your name, incomplete name on record of the bank, etc. Best to confirm with the RTA.
Q. Is CAF number mandatory to apply for Rights issue?
CAF number isn't supposed to be mandatory now since there are no physical rights composite application forms. If the bank hasn't removed it from their portal, you can enter any dummy number (let's say your PAN). Please reach out to your bank for making the required changes on their portal (Some banks have already grey-ed out this field).
Note: You can track the list of all corporation actions here.