What is the Right issue? Generally, we all know bonus shares, dividends given by the company all of these things. But many of us are confused about the right issue of shares. So here you can get all the information about the right issue.
What is the Right Issue Of Shares
So, why does the company gives the right issue? What are the benefits of the right issue? It’s simple if a company wants more money to run its business or have an adequate amount of funds in its reserve Generally to increase the shareholder’s value or which can result in increasing equity percentage. Here, we can see that it will also lower its debt to equity ratio which seems to be attractive to investors as lower debt to equity ratio can be said as a good company or attractive company. It is one of the ratios to measure companies’ performance.
So, what is the right issue? Generally, if a company wants to raise money or increase shareholding it gives a preference to existing shareholders a right or we can say preference to buy it shares at a lower price compared to market value. It is generally done because the people who are real investors get preference in buying the same stock at a lower price which shows confidence in shareholders.
This right is given to existing shareholders to and shares are not given directly to the public. If a subscription of the right issue is not up to the mark then a company goes to the public and asks them to buy shares. This in turn increases the market capitalization of the company. So, why do companies raise this right issue? The answer to this question can differ as some of the companies have to lower their debt or some have expansion plans or some companies may take it as to use it for the general expenses can be fulfilled. It will be shared before the issue comes to the market. After the first lockdown, the giant Reliance Industries Ltd had issued the right issue.
The traded price of the stock was around rupees 1400 in the market and the issue was given at just 1200 for existing shareholders. People generally apply for the right issue as we get a share at a discounted rate and we can increase our shareholding in the company. Which in turn can be given an attractive return to it. A lot of big giant companies do it so that they can increase shareholders’ value. If a company has big plans and has a good future you should always apply for the right issue.