Rights issue vs IPO: how they differ
Both raise money by issuing shares, but they are offered to different people and work quite differently.
IPO
A company's first offer of shares to the public. Anyone eligible can apply, shares are allotted by lottery or proportionately when the issue is oversubscribed, and the share starts trading on listing day.
Rights issue
A listed company offers new shares to its existing shareholders in proportion to what they hold, for example one new share for every five held, usually at a discount to the market price. Shareholders receive rights entitlements in their demat account, which they can use to apply, renounce or sell on the exchange before the issue closes.
Key differences
Who can apply: anyone for an IPO; shareholders on the record date (or buyers of their entitlements) for a rights issue.
Allotment: a lottery or proportionate allotment in an IPO; your entitlement in a rights issue, with additional shares only if others don't take theirs.
Price: a band and book building in an IPO; a fixed discounted price in a rights issue.
Not taking up your rights
If you ignore a rights entitlement, your share of the company is diluted when others subscribe. Selling the entitlement before it lapses at least recovers some value.
Related guides
- IPO vs FPO: what's the difference?
- Offer for sale (OFS) vs fresh issue in an IPO
- What is book building in an IPO?
More on how ipos work
- IPO lot size, price band and cut-off price explained
- SME IPO vs mainboard IPO: what is different
- IPO categories explained: retail, HNI (NII) and QIB
- Anchor investors in an IPO
- DRHP, RHP and prospectus: what to read before an IPO
- The shareholder quota in an IPO
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Information, not investment advice. GMP is an unofficial grey-market indicator; figures come from public sources (InvestorGain) and may be late or wrong. Not registered with or affiliated to SEBI, the exchanges, the registrars or InvestorGain.