Guide · Corporate actions · Updated 2026-09-23

A rights entitlement is a security with its own price, and letting it lapse hands that price to someone else

The rights issue explainer sets out why the discount in a rights issue is not a gift. This page is about the instrument that discount becomes once it is credited to a demat account, and about the small, short-lived market in which it trades. Every figure below was computed from the exchange's own daily files for every entitlement that traded from Jan 2022 to Sep 2026, with the method stated so the work can be redone.

An entitlement is a security, not a permission slip

SEBI's circular of 22 January 2020 on streamlining the rights issue process turned the right to subscribe into a dematerialised security for every issue whose letter of offer was filed from 14 February 2020. Its rules now sit in Chapter 2 and Annexure IA of the master circular for the ICDR Regulations, last updated on 9 February 2026. The issuer obtains a separate ISIN for the entitlements and announces it with the record date. The issuer credits them through a corporate action in the depository system to everyone holding shares on the record date, before the issue opens, and the ISIN stays frozen for debits until the opening day, so nothing can move before a market for it exists. Fractional entitlements are rounded down.

In the exchange's files the entitlement looks like a share with a suffix. From Jan 2022 to Sep 2026 the security bhavcopy lists 223 of them, each the parent's abbreviated symbol followed by -RE, with -RE1, -RE2 and -RE3 for a company's later issues. 189 traded in BE and 34 in ST, the main board and SME trade-for-trade series set out in the bhavcopy field guide. Trade-for-trade matters here: there is no netting, every trade settles by delivery, and the master circular accepts an order to sell entitlements only up to the entitlements already in the seller's demat account. An entitlement cannot be sold short.

What it carries is narrow and exact: the right to apply for one new share at the issue price, on or before the issue closing date. The statutory root is section 62(1)(a)(ii) of the Companies Act, 2013, under which an offer of further shares includes, unless the articles provide otherwise, a right to renounce them in favour of any other person; the dematerialised entitlement is that right made tradable. Clause (iii) of the same provision is the other half: shares not taken up may be disposed of by the board in a manner not disadvantageous to the shareholders and the company. The master circular closes the loop. Entitlements neither renounced nor subscribed lapse after the issue closes, are extinguished once the shares are allotted, and their ISIN is permanently deactivated.

The price the arithmetic assigns, and the price the exchange starts from

A holder of b shares at P who is offered a new shares at K ends up, after paying in, with a + b shares worth b × P + a × K, because the mechanics create no value and destroy none. Divided by the new share count, that is the theoretical ex-rights price, TERP = (b × P + a × K) / (a + b). Each entitlement converts into one share on payment of K, so at that price it is worth TERP less K, which works out to b (P less K) / (a + b), and at any later share price S it is worth S less K. No ratio adjustment is needed per entitlement, because one entitlement is one share. The ratio enters only when the value is expressed per share held, where it becomes a (P less K) / (a + b), exactly the fall from P to TERP. The rights factor built from the same arithmetic, for adjusting a price history, is worked in the price adjustment guide.

Two properties follow. The entitlement is leveraged: with the issue price at 80 per cent of the share price, a 1 per cent move in the share moves the entitlement's intrinsic value by 5 per cent, and across the sessions measured below the median multiple was 4.3. And its fair value depends on two observable prices, the share's and the issue's, which makes it one of the few instruments on the exchange whose price can be checked against a formula every session.

The exchange starts from the same formula. In its files the entitlement's previous close on its first session, the base price, equals the share's previous close less the issue price. Of the 185 entitlements that could be matched to a rights record on the exchange's corporate actions list, 175 satisfy that identity to within a paisa or half a per cent, and 6 more sit at the one-paisa or five-paisa floor because the issue price was above the share price. 11 of the 175 satisfy it only with the face value the company had when it made the issue, not the one the list carries today, which is a trap for anyone computing issue prices from that list. The 4 that match neither, one of them an offer bundled with warrants, are left out of everything that follows. From the second session the base is the entitlement's own last close, and all 223 entitlements in the exchange's daily band files began with a 40 per cent band. An investor FAQ one exchange published for the 2020 framework states the same base price rule and the same band.

Four sessions on paper, and the window shuts before the issue does

The calendar changed in 2025. The SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2025, notified on 3 March 2025, and SEBI's circular of 11 March 2025 require a rights issue to be completed within 23 working days of the board's approval, for issues approved from 7 April 2025, and set the issue period at a minimum of seven days and a maximum of thirty. The indicative table in that circular, now Annexure I of the master circular, puts the record date at T+8, the credit of entitlements at T+9, the opening of the issue and of entitlement trading at T+14, the last session of entitlement trading at T+17, the end of off-market transfers at T+19 and the close of the issue at T+20. A second table has the new shares trading three working days after the close.

Two rules moved, and explanations written for the 2020 framework still describe the old ones. The January 2020 circular closed entitlement trading at least four days before the issue closed and settled it T+2. The master circular now says at least three working days and T+1. An investor FAQ one exchange still publishes, as read on 23 September 2026, gives T+2 and four days. Under the current rules a buyer on the last trading session receives the entitlements the next working day and still has time to apply before the close.

On paper the window is four sessions on a seven-day issue, and the files show it shrinking toward that. Counted from the daily band files, which list every security available for trading whether or not it traded, the median entitlement across all 223 was open for 6 sessions, from 2 to 18. In 2026 the median is 4, and 20 of 39 entitlements were open for four sessions or fewer. The board approval date that decides which framework governs an issue is not in the files, so the yearly split is a proxy: an issue approved before 7 April 2025 stays on the old rules even if it opened later.

What the entitlement actually traded at

The test is the one the formula invites. For every fully paid issue whose terms could be confirmed, take each session in which both the entitlement and the share traded, compute intrinsic value as the share's close less the issue price, and set it against the entitlement's close. Sessions where intrinsic value was under one rupee or under 2 per cent of the share price are left out, because at those levels the one-paisa tick is a large fraction of the entitlement's price and the ratio measures the tick. That leaves 764 sessions from 128 issues.

The entitlement closed below its intrinsic value in 723 of them, 94.6 per cent, at a median of 74.7 per cent of it, with the middle half of sessions between 53.4 and 90.1 per cent. Measured against the share price instead, the median gap was 4.91 per cent, or 1.62 times the share's own daily standard deviation. 123 of the 128 issues had their median session below intrinsic value. The same test on each day's volume weighted prices gives 95.8 per cent below and a median of 72.8 per cent, so the result is not an artefact of closing prices. Without the one-rupee filter, 827 of the 922 sessions with any intrinsic value closed below it.

The gap does not close as the window runs out. The first session closed at a median 80.3 per cent of intrinsic value and the last at 73.4 per cent. The market does not converge on the formula as the deadline nears, because even the last trading session is six working days from the first chance to sell the shares it buys.

Two groups sit outside the headline. The 26 partly paid issues, where the issue price is paid in instalments, closed at a median 77.7 per cent of an intrinsic value computed on the full issue price. Their true value is higher, because the later calls are paid later, and the call schedules are not in the files, so they are reported rather than pooled. And in 80 sessions across 15 issues the share closed at or below the issue price, leaving the entitlement no intrinsic value at all. It printed a positive close in every one of them.

Four windows, day by day

Each panel shows one mechanism. The typical issue, 19 for 100 at 150.00, traded between 70 and 87 per cent of intrinsic value across 8 sessions and ended at 75 per cent. The second had its band cut in stages from 40 to 5 per cent, closed at a band limit on 9 of its 12 sessions and never closed above 73 per cent of intrinsic value; when the share rose, the entitlement could climb only a few paise a session. The third, a share with stock futures, stayed between 97 and 102 per cent. In the fourth the share stayed between 10.90 and 50.90 rupees below the issue price for all 6 sessions, yet the entitlement rose from 0.10 to 0.33, closing at its upper band in every one of them: buyers were paying for the chance that the share would clear the issue price before the close.

Why the discount survives the window

Only one side of the trade can be done. A cheap entitlement invites a simple arbitrage: buy it, apply for the share, and sell the share short until the new shares arrive. SEBI's short selling framework, restated in its circular of 5 January 2024, prohibits naked short sales, requires every seller to deliver at settlement, and makes only securities in the derivatives segment eligible for short selling. Most rights issuers are not in that segment: of the 181 issues here, 6 had stock futures while their entitlements traded. The 3 fully paid issues among them traded at a median 98.7 per cent of intrinsic value; the 125 without futures traded at 74.0 per cent. Three issues settle nothing on their own, and those issuers are also larger and more liquid, but the direction is the one the rule predicts. The opposite trade is blocked more simply: when the entitlement is dear, only a holder can sell it.

Six working days of price risk nobody can lay off. After the last entitlement session the calendar allows three working days to the issue close and three more before the new shares trade. A buyer on that session who applies owns the share's price risk for the whole stretch. Measured on 117 fully paid issues, the share's median absolute move over the six sessions after the last entitlement session was 4.7 per cent, about the size of the discount itself, and in 26 of them, 22 per cent, the share fell by more than that last session's discount. On these numbers the discount is a price for that exposure, not a mispricing waiting to be collected.

A percentage band on a levered price. The band limits the entitlement's move to a percentage of its own previous close, while its intrinsic value moves by a multiple of the share's percentage move. An entitlement listed close to the money starts from a base of a few rupees, so even a 40 per cent band moves it by paise, and the exchange can cut the band during the window. Across every entitlement session in the files, 410 of 1,470, 27.9 per cent, closed at a band limit, 186 at the upper and 224 at the lower. Sessions that closed at the lower limit sat at a median 44.8 per cent of intrinsic value, against 78.2 per cent for sessions that closed inside the band. The price band guide covers how the exchange sets and revises bands.

A short window and a thin book. From February 2024 the exchange's daily market capitalisation file gives the number of entitlements admitted to trading. Against it, traded volume across the whole window was a median 10.3 per cent of the entitlements in issue, the middle half between 5.7 and 19.9 per cent, over 132 issues, and passed half in only 8. That count leaves out the other exchange and off-market transfers, so it is a floor on renunciation, but it is the market in which a holder who will not pay has to find a price, inside four to six sessions.

A cheaper door to the same shares. The basis of allotment in Schedule VI of the ICDR Regulations gives unsubscribed shares first to holders who applied for their full entitlement and asked for additional shares. An investor who expects an issue to be undersubscribed can get extra shares at the issue price that way without paying the entitlement's price, which draws buyers away from the market in which lapsing holders have to sell.

The option in the entitlement pulls the other way. A holder decides whether to pay only at the close, so near the money the right to walk away is worth something, which is why an entitlement with no intrinsic value still trades above zero. Grouped by how close the issue price stood to the share price, the gap as a share of the share price falls from 7.9 per cent where the issue price was under half the share price to 2.8 per cent where it was within a tenth of it. As a share of intrinsic value it moves the other way, from 89.7 to 56.3 per cent, because intrinsic value itself shrinks toward zero.

The lapse, computed

A holder who neither subscribes nor sells keeps the same number of shares and loses the fall from P to TERP on each of them. Per share held that is a (P less K) / (a + b). As a share of the holding's value it is a / (a + b) multiplied by 1 less K / P: the new shares' share of the enlarged capital, times how far below the market they were priced. An illustrative one-for-five issue at a 20 per cent discount costs a lapsing holder a sixth of 20 per cent, 3.3 per cent of the holding. A one-for-one issue at face value, when the share trades at many times face value, costs close to half.

Measured on the 164 issues whose terms are confirmed, whose issue price sat below the last cum close and whose ratio the exchange's counts do not contradict, a lapse cost a median 6.9 per cent of the holding's value, with the middle half between 2.9 and 13.3 per cent. It reached 10 per cent in 55 issues, 20 per cent in 25 and 30 per cent in 13. The largest, 73.0 per cent, came from an issue of 8 new shares for every 1 held at an issue price of 1.00, its face value, against a last cum close of 5.61. The median issue price stood 30 per cent below the last cum close.

Where that value goes is written into the basis of allotment, in Schedule VI of the ICDR Regulations as amended in 2025. Shares go first, in full, to holders and renouncees who applied for their entitlements; then to holders who applied in full and asked for additional shares, on an equitable basis having regard to their holdings; then to renouncees who asked for additional shares, proportionately; and last, under the clause (d) added to Regulation 90(2), to specific investors disclosed before the issue opened, or to any other person the board deems fit. Each of them buys at the issue price a share worth the market price, and the difference is the lapsing holder's loss, transferred to the rupee. Nothing in that order pays the holder whose entitlement lapsed. The same amendments let promoters renounce their own entitlements to named investors under Regulation 77B, provided the names are disclosed in advance and those investors apply before 11 A.M. on the first day.

Three choices, as arithmetic

Take the issue in the ladder figure and a holder of 1,000 shares on the record date. The terms, 19 for 100 at 150.00, give 190 entitlements once the fraction is rounded down. Value everything at the closes of the last entitlement session, when the share stood at 194.66 and the entitlement at 33.40 against an intrinsic value of 44.66.

Subscribing is ahead of lapsing by 190 × 44.66 = 8,485, the entitlements' whole intrinsic value, but it takes ₹28,500 in cash and keeps the price risk until the new shares list. Selling is ahead of lapsing by 190 × 33.40 = 6,346, 74.8 per cent of that value, and needs nothing but a sell order inside the window. Lapsing keeps nothing. A holder who wants neither to add cash nor to give up all the value can sell part and use the proceeds for the rest: selling a fraction K / (R + K) of the entitlements funds the remainder, here 81.8 per cent sold to take up 18.2 per cent, at the cost of the gap on the part sold.

Dealing costs come off the sale, and on a small entitlement the fixed part of brokerage can exceed the proceeds, the one case where selling and lapsing converge. For securities transaction tax, the exchange FAQ cited above classes an entitlement sale with the sale of an option in securities, payable by the seller, and quotes 0.05 per cent; the rate for that category is 0.15 per cent from 1 April 2026 under the Finance Act, 2026, according to the exchange's circular NSE/FATAX/73524 of 31 March 2026. The contract note settles which rate was actually charged.

Tax follows cost-base logic of the kind the demerger cost base guide works through for a split holding. Under the Income-tax Act 1961 numbering, section 55(2)(aa) takes the cost of a renounced right as nil for the holder who received it, so the whole sale price is a capital gain, and takes the cost of shares bought through a purchased entitlement as the price paid for it plus the amount paid to the company. The holding period of a renounced right runs from the date of the offer, so the gain is almost always short term. The numbering has changed under the Income-tax Act 2025; the note at the end says what to check.

What the entitlement market is for, and what it cannot do

The market exists so that a holder who will not pay can hand the value to someone who will, instead of losing it. It does that job imperfectly and predictably: at the median it pays about three quarters of intrinsic value, less on a thin issue near the money or with a band that has been cut, and close to all of it where the share has futures. For a buyer the entitlement is a leveraged, short-dated claim on the share, carrying a week of exposure that most issuers give no way to hedge, and the discount is what the market charges for that. The six-session moves show it is not free money.

The limits of these numbers are specific. They cover one exchange's trading; the other exchange and off-market transfers are not in the files. SME entitlements are left out because their terms are not on the corporate actions list used here, and so are 4 main board entitlements whose rights records are not on it. Closes are end-of-day prices of two securities that need not have traded at the same moment, which the volume weighted check addresses only in part. Partly paid issues are kept out of the headline for the reason given. Nothing here is a forecast or a recommendation, and a discount measured on past issues says nothing about the next issue's.

Reading an entitlement as a priced, levered claim with a settlement calendar attached, rather than as a notice to be filed away, takes five minutes with the letter of offer and a price screen, and it is the habit taught here as method: the formula first, then the calendar, then the market's price against both.

Every episode, with its inputs

The table lists all 181 episodes used on this page, anonymised and in order of first session, with the inputs needed to redo each figure: the terms, the confirmed issue price, the last cum close, the sessions open, the entitlement's close over intrinsic value on its first, median and last sessions, and turnover where the exchange's own count exists. Where a cell reads n/a the session falls outside the sample or the files do not give the figure.