How to apply in a rights issue on Zerodha

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A rights issue is a corporate action in which a listed company offers additional shares to its existing shareholders at a discounted price, in proportion to their current holdings, before approaching the general public. Shareholders receive Rights Entitlements (REs), tradeable instruments credited to their demat accounts, representing the right to subscribe to a specified number of new shares at the issue price.

A 1:4 rights issue means one new share can be subscribed for every four existing shares held on the record date. Shareholders may:

  • Apply (exercise) their REs by paying the subscription price.
  • Renounce their REs by selling them on the exchange (REs are listed and tradeable).
  • Let REs lapse (take no action), in which case the REs expire worthless.

Zerodha facilitates rights issue applications through the exchange’s rights issue platform, for which it charges a corporate action order fee of Rs 20 plus GST.

Conflict-of-interest disclosure: WebNotes is an independent information publisher with no commercial arrangement with Zerodha.

Prerequisites

  • An active demat account with Zerodha at CDSL.
  • Holdings in the company on the rights issue record date (to receive REs automatically).
  • Sufficient funds in the Zerodha trading account to pay the subscription price if applying.
  • Internet banking or ASBA facility with a Self Certified Syndicate Bank (SCSB) to pay through the bank directly (alternative to payment through Zerodha’s platform).

Regulatory framework

Rights issues by listed companies are governed by the SEBI (Issue of Capital and Disclosure Requirements) (ICDR) Regulations, 2018. Key provisions:

  • The issue price for rights shares must be at or below the prevailing market price (rights shares are typically offered at a 20–40% discount to the current market price).
  • Rights Entitlements must be credited to the demat accounts of eligible shareholders.
  • REs are mandatorily listed on NSE and BSE and are tradeable during the offer period.
  • Shareholders who do not hold shares on record date can still acquire REs by purchasing them from the secondary market during the RE trading window.
  • The offer period must be open for a minimum of 7 working days and a maximum of 30 working days.
  • Applications can be submitted through ASBA (Application Supported by Blocked Amount) via banks, or through the exchange’s rights issue platform via the broker.

Step-by-step: applying for a rights issue on Zerodha

Step 1: Confirm record date eligibility

Check the company’s exchange announcement for the rights issue record date. Shares must be settled in your Zerodha demat account before the record date. Under T+1 settlement, purchase shares at least one trading day before the record date to be eligible.

Step 2: Verify RE credit

Within 2 to 4 working days of the record date, Rights Entitlements are credited to your Zerodha demat account as a separate instrument (with a dedicated ISIN). Log in to Console > Holdings to verify the RE credit. The RE quantity equals your eligible share quantity multiplied by the ratio (for example, if you hold 400 shares and the ratio is 1:4, you receive 100 REs).

Step 3: Decide, apply, renounce, or lapse

OptionAction requiredRevenue impact
Apply (exercise)Submit application via Kite or ASBA bankPay issue price; receive new shares
Renounce (sell REs)Sell REs on NSE/BSE via Kite like any secondary tradeReceive RE market price as sale proceeds
LapseNo actionREs expire; entitlement forfeited

The RE trading window (the period during which REs can be bought and sold) typically opens a few days after the record date and closes a few days before the issue close date. Check the company’s timetable in the Letter of Offer (LOF) for exact dates.

Step 4: Apply through Zerodha Kite (exchange platform)

  1. Log in to Kite at kite.zerodha.com.
  2. Navigate to the “Corporate Actions” or “Rights Issue” section (visible only when an eligible rights issue is active for your holdings).
  3. Enter the number of REs you wish to exercise (must not exceed the REs credited to your account; you may also apply for additional shares beyond your entitlement in many issues, check the LOF).
  4. Confirm the total amount payable (RE quantity × issue price).
  5. Ensure sufficient funds are in your Zerodha trading account before submission.
  6. Submit the application. Zerodha debits the application amount and charges Rs 20 plus GST as the corporate action order fee.
  7. Note the application reference number for tracking.

Step 5: Apply through ASBA (bank route, no broker fee)

Alternatively, applications can be submitted via net banking of any SCSB directly:

  1. Log in to the bank’s net banking portal.
  2. Locate “Rights Issue” or “IPO / corporate actions” section.
  3. Enter the company’s rights issue details, your demat account number, and the number of shares applied for.
  4. The bank blocks the application amount in your savings account. The amount is debited only on allotment.
  5. This route does not attract the Zerodha Rs 20 corporate action fee.

The ASBA route is recommended for large subscription amounts because the funds remain in the bank account and earn interest until debited on allotment.

Step 6: Additional subscription (beyond entitlement)

Most rights issues permit shareholders to apply for additional shares beyond their entitlement. This is indicated in the Letter of Offer. If the issue is undersubscribed, additional applicants may receive allotment. If oversubscribed, additional subscriptions are not filled. Submit a separate line for the additional quantity in the application form (both Kite and ASBA bank portals have an “additional subscription” field).

Step 7: Track allotment and credit

After the issue closes:

  • The company’s RTA finalises the allotment.
  • New shares are credited to the demat account within 7 to 15 working days of the issue close date.
  • Refunds (if any) for unallotted additional subscriptions are credited to the bank account.

Selling Rights Entitlements (renunciation)

REs are listed and can be sold on NSE and BSE through Kite as a regular CNC sell order. The RE trading window is a separate, shorter period than the full issue open period.

  • Selling REs realises value without subscribing to new shares.
  • RE prices fluctuate based on the discount the issue price offers relative to the market price of the underlying share.
  • Normal brokerage, STT, and exchange charges apply to RE trades (same as equity delivery trades). Zerodha does not charge an additional corporate action fee for selling REs on the secondary market.
  • RE purchases from the secondary market (buying REs you did not receive as entitlement) also allow participation in the rights issue via Kite; the buyer of REs can then apply for the shares at the issue price.

What can go wrong

REs not visible in Console: If REs are not credited within 5 working days of the record date, raise a Zerodha support ticket. The RTA may have listed you at a different depository (NSDL vs CDSL) address or the processing may be delayed.

Application window missed: Rights issues have a hard deadline. Applications submitted after the issue close date are rejected. Set a reminder at least 3 days before the issue close date.

Insufficient funds on application date: Zerodha requires the full subscription amount to be in the trading account at the time of application. Ensure the funds are available at least one working day before the application deadline.

RE lapse without action: If you take no action, REs expire at the end of the offer period. The SEBI ICDR Regulations provide that the company’s promoters or the lead manager may pick up unsubscribed shares, not the lapsing shareholder. There is no auto-renunciation or cash payment for lapsed REs.

Tax treatment

Subscription to rights shares

The cost of acquisition of rights shares is the issue price paid plus any brokerage or transaction charges. The holding period begins from the date of allotment. Capital gains tax applies on eventual sale:

  • STCG (sold within 12 months of allotment): 15% under Section 111A.
  • LTCG (sold after 12 months of allotment): 10% on gains above Rs 1 lakh under Section 112A.

Sale of Rights Entitlements

Proceeds from selling REs are taxable as capital gains. The cost of acquisition of REs received as entitlement is nil (since no consideration was paid for the RE itself). The entire RE sale price is the capital gain. Since REs are typically held for less than 12 months (given the short trading window), the gain is generally STCG at 15%.

REs purchased from the secondary market have a cost of acquisition equal to the purchase price. Gain on sale = sale price minus purchase price. This too is typically STCG given the short holding period.

References

  1. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, rights issue provisions, RE credit, and trading.
  2. SEBI Circular SEBI/HO/CFD/DIL1/CIR/P/2020/136, compulsory dematerialised Rights Entitlements.
  3. Income Tax Act, 1961, Section 55, cost of acquisition of rights shares.
  4. SEBI ASBA framework, rights issue application through SCSBs.
  5. NSE/BSE rights issue platform, operational guidelines and RE listing.
  6. Zerodha support documentation, rights issue application via Kite.

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The WebNotes Editorial Team covers Indian capital markets, payments infrastructure and retail investor procedures. Every article is fact-checked against primary sources, principally SEBI circulars and master directions, NPCI specifications and the official support documentation published by the intermediary in question. Drafts go through a second-pair-of-eyes review and a separate compliance read before publication, and revisions are tracked against the SEBI and NPCI rule changes referenced in the methodology section.

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