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Right issue is the share that a company offers to its existing shareholders. The number of right issue to be offered to an investor depends on the number of shares that the investor is currently holding. While the right issue is offered to the shareholders, he or she has the right to buy a shares or ignore the right issue offer to lapse or even sell the entitlement of the shares. The companies offer the right issue to get more fund from the equity to meet their capital requirement or further expansion of the business. In most cases one share is allotted for two shares.

When the right issue is offered to the existing share holders, it is offered to them at a lower price than the existing price of the stock at the stock market. But that does not mean that the shareholders can make huge profit from this price difference. This is because after the right issue is offered price of that particular stock falls in the stock market. It happens because the number of stock of that company increases in the market. Especially if the number of the right issue is relatively higher than the paid-up capital the price falls. Moreover the dividend yield and the PE ratio of that particular stock also falls after the right issue is offered.

Theoretically the right issue does not give significant profit to the shareholders in spite of the fact that they get the stock in lower price. But in practice the shareholders always find the right issue an attractive option to buy the shares of the company. This is because the presume that the company is going to utilize the additional fund from the right issue for further development and expansion of the company that will eventually strengthen the financial standing of the company.

Recently SBI has issued it.


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