Maximizing Returns: Strategies for Investing in Decoding Right Issues

How to Strategies for Investing in Decoding Right Issues

The sound of the stock market gong resounds not just with the dealings of the day but also with the potential of exponential growth for investors. One such aspect of this enticing world of stocks and shares that draws investors is the ‘Right Issue.’ So, what is a right issue of shares?

A ‘right issue‘ is essentially a fundraising tool for companies, where existing shareholders are offered additional shares in proportion to their current holdings, usually at a discounted price. It enables corporations to shore up their equity base while ensuring that the control stays with the existing shareholders. However, as attractive as it sounds, maximising profits from this avenue requires a meticulously mapped strategy.

Investing in right issues can be a profitable venture if navigated wisely. First, understand the rationale behind the right issue. Carefully examine the company’s reason for fundraising – Is it for expansion? Debt reduction? Acquisitions? Or simply general corporate purposes? Scrutinising these details will help you understand the company’s future prospects. For instance, if the funds raised are used for expansion or acquisitions, it could lead to improved productivity and profitability in the long run.

Second, assess the terms of the issue, primarily the price at which the rights are offered and the number of shares you can acquire. The discounted price might seem tempting, but thorough research will help ascertain if it is indeed a bargain. Compare this with the company’s current market price and examine financial factors such as earnings per share (EPS), price-to-earnings ratio (P/E), and book value.

Simultaneously, look out for the record date – the date by which you must own shares to be eligible for the right issue. The share price often witnesses considerable fluctuations around this date. Strategizing the right time to invest, considering the record date, can secure favourable returns.

Many investors fancy the idea to invest in US stocks from India. The right issues offer a compelling window for the same, given the right safeguards are in place. Ensuring the credibility of the platform or broker assisting the investment, understanding the pricing and currency conversion dynamics (INR to USD and vice versa), and taking cognizance of tax complications is critical.

For instance, let’s say you buy 500 shares at 200 INR each which totals to one lakh INR. If one USD is 75 INR, you’ve essentially invested around 1333 USD. Now, if the stock appreciates to 250 INR (which is around 3.33 USD at the conversion rate of 1 USD for 75 INR) per share, your investment is now worth 1.25 lakh INR or approximately 1667 USD. This shows a decent return on your initial investment.

However, it is integral to remember that investing in right issues or in any other shares, whether Indian or US, must be done prudently, with a comprehensive understanding of the market, the company and its financial standing. Past performance of a company is not indicative of its future, and shareholders’ decisions should invariably be backed by diligent research, evaluations, and risk management tactics.

Investors can use investment apps for multiple investment purposes like FD, trading, mutual funds etc. Download Bajaj Finserv app and make your trading fast and easy. 

Disclaimer: This article does not provide or substitute financial advice tailored to your personal circumstances. The stock market is unpredictable and fluctuates due to various factors. The investor must weigh all pros and cons, considering their own risk appetite before venturing into trading in the Indian stock market or foreign stocks. Rules and regulations relating to investing in foreign stocks may change; ensure you stay updated with the latest norms.

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