10 Reasons Why Small Investors Stay Away From Rights Issue

Reasons Why Small Investors Stay Away From Rights Issue Woman investor expressing her feelings for not subscribing rights issue.

Rights issue may not attract every investor. These reasons why small investors stay away from rights issue can help you to understand it better.

Rights issue is a form of invitation to existing shareholders for making cash contribution in return of additional new shares of the company. These additional new shares are usually offered at a reasonable discount to make the issue successful.

But, still a large number of small & big investors usually dislike a rights issue for a number of reasons. They ignore a rights issue even when it is being offered at a discount to existing shareholders only rather than all types of investors. Here are 10 reasons why retail investors refrain from rights issue:

[You can also watch an exciting video on this post from GetUpWise channel on YouTube.]

(1) Possibility Of Share Price Fall Soon After The Issue

It is one of the most common reasons why small investors stay away from rights issue. Any issue that is meant to offer additional new shares to its investors is likely to dilute earnings per share.

Right issue is not a different thing in this regard. It dilutes the earnings per share of underlying company.

Additionally, it also dilutes existing stake of existing shareholders, if they don’t exercise their rights to purchase new shares. Due to this possibility of earnings dilution, the share price of underlying company takes a nosedive to certain extent.

This common form of stock behavior post rights issue often makes small investors to feel afraid of subscribing to rights issue. Therefore, they prefer to stay away from such issues.

However, if the main objective behind the issue is business-friendly for the company then price fall post rights issue may be negligible.

Image Source

  • Reasons Why Small Investors Stay Away From Rights Issue: Shutterstock

Recommended Posts

More From GetUpWise

About Editing Staff
At GetUpWise, we are a team of professional writers from different areas of subjects. We are conducting thorough research on each & every topic from highly reputed sources before writing any piece of article. Once research is done, we try our best efforts to provide informative piece of articles in an easy to understand manner. It is something that is extremely essential to meet our goal while reaching & offcourse building a strong online community. We do update our articles from time to time in order to provide the most latest information quickly. Thus, our articles can be used as a "way to gain smartness".

Leave a comment

Your email address will not be published.


*


This site uses Akismet to reduce spam. Learn how your comment data is processed.

Get Instant Access To GetUpWise Posts

Subscribe Us

Please do verify your email address by clicking a link sent to your email.

More in Stocks & Mutual Funds
Factors Determining Market Price Action Post Rights Issue
10 Factors Determining Market Price Action Post Rights Issue

Rights issue can make share price quite volatile. These factors determining market price action post rights issue can be beneficial...

Close