Online trading is becoming increasingly popular among investors in India. Technology has made it easy for investors to buy and sell stocks online, saving time and making it more accessible to a wider audience. However, before diving into online trading, investors must get a deep understanding of right issues in the Indian stock market, which will help make informed decisions.
What are Right Issues?
Right issues are a mechanism through which a listed company can raise capital by offering its existing shareholders the right to buy additional shares at a discounted price ratio. It is a way for the company to raise funds without approaching external sources, thereby maintaining ownership. The price of the right issue is usually lower than the market price.
Right issues are announced by companies to raise capital or reduce their high debt levels. Right issues can be renounced too. A shareholder can sell his/her rights to buy shares to another investor.
It is essential to understand the right issues because it is a way for investors to increase their stock portfolio while availing of a discounted price. Investors can purchase additional shares at a preferred ratio if they already hold shares in a particular company. The discount offered on the issue price is an incentive for shareholders to exercise their right to buy additional shares.
Present calculations
Suppose a listed company XYZ announces a right issue for its shareholders at a discounted price ratio of 3:5 and at a price of INR 100. In this scenario, the existing shareholders will be given the right to buy 3 additional shares for every 5 shares held. Thus, if shareholders exercise this right, they will receive one additional share at a discounted price for every two shares held by them.
Therefore, if an investor holds 100 shares of XYZ, he/she can purchase an additional 60 shares at INR 100 by leveraging the discounted price of the right issue. The total purchase would cost INR 6000 for 60 additional shares obtained at a discounted price of INR 100.
Disclaimer
Investing in the stock market involves risks. Right issues meaning is vital to grasp before making investment decisions. However, investors must gauge all the pros and cons of trading in the Indian stock market. They should review the company’s financial position, and market reputation, research, and analyze the sector outlook. Investing in shares that are underpriced compared to their intrinsic value are likely to give investors better returns.
In conclusion, online trading has opened up new avenues for investors to participate in the Indian stock market. A thorough understanding of concepts like right issues, and astute investment decisions will help investors succeed in their endeavors. It is advised that investors educate themselves and seek professional advice before investing in the stock market to manage risks and enhance their returns.
