A company announces a Rights Issue to invite existing shareholders to buy more shares, usually at a discounted price. These shares are known as Rights Shares.
After a Rights Issue is announced, the company credits its existing shareholders’ Demat Accounts with REs (Rights Entitlements).
These REs are not the Right Shares but the benefit given to existing shareholders to apply for the Right Shares. If shareholders do not wish to apply for these Rights Shares, they can even trade these REs in the market until a particular date.
When you receive REs and do not apply for the rights share or trade them, the REs will get lapsed and your Demat account credited with these temporary shares will get debited once the allocation process is complete.
If the RE was purchased by you, you will also lose the amount paid to acquire those REs. Thus REs in themselves do not mean you hold rights shares, the rights shares need to be applied for by the issue closing date.
For FAQs on Rights Entitlement issued by SEBI, click here.