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What is the meaning of Cum Rights shares


Posted Date: 08-Sep-2010  Last Updated:   Category: Articles    
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To raise the capital of the company, companies can go to the market with a fresh public offering or if the requirements of funds is not large, then the company my decide to go in for rights issue of shares. Rights issue of shares relate to the entitlement of a shareholder member of a company to subscribe to the shares offered to them.



To raise the capital of the company, companies can go to the market with a fresh public offering or if the requirements of funds is not large, then the company my decide to go in for rights issue of shares. Rights issue of shares relate to the entitlement of a shareholder member of a company to subscribe to the shares offered to them. It is given in different proportion from 20 shares for every 100 share held or 50 shares for every 100 share held. In other words the shareholders of a particular company say ABC can participate and subscribe for the shares offered by the company. Such rights shares are generally offered at a discount to the ruling market price. Cum Rights sharesare like Cum Bonus Shares. But there is a difference between the two. If the shares are sold cum rights, then the right to subscribe for the shares also goes to the prospective buyer. Alternately, the shareholder of a company when offered by rights shares by the company have the option of either selling, partially or fully, or subscribing to the shares offered as "right". Sometimes it is also said that the rights shares are also called "mini bonus" shares. Why ? Because if the value of a particular scrip is Rs 200 share, then if the rights are given to shareholders say at Rs.40, there is an element of price differential. Further there is a difference between the price of cum rights and ex rights shares. To make it more clear cum rights shares will have a cost value. Before the script becomes ex-right, if the shares are sold, the right to subscribe also goes to the prospective buyer. When the buyer is given the right to "right shares" it is known as
sold as cum rights. If the share is sold as ex eights, the right to subscribe for shares is not passed on to the purchaser.

Readers may seek clarification, if any, through these columns.


Reference: www.nseindia.com
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