Part of the guide: Dividends, stock splits, bonus issues, buybacks and rights issues explained
Corporate actionsQIP, preferential issue and rights issue compared: who can subscribe, how the price floor is set, and what lock-in applies
A clause-by-clause comparison of three ways a listed company issues new shares under SEBI's ICDR Regulations, 2018 (text amended up to 21 March 2026): who may subscribe, the price rule, and the restrictions on selling.
Most guides explain a rights issue, a preferential issue or a QIP one at a time, in general terms, and some still quote rules from before 2022. This article does something narrower: it lines the three routes up against the actual clauses of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, in the consolidated text that SEBI shows as amended up to 21 March 2026. It compares three things only: who the shares can be offered to, how the lowest permitted price is worked out, and what limits apply on selling afterwards. It describes the rules. It does not say that any route, price or issue is good or bad, and it does not cover any particular company’s offer.
All price examples are invented. Returns on shares are not guaranteed, and nothing here predicts a price.
The three routes in one table
| Rights issue (Chapter III) | Preferential issue (Chapter V) | Qualified institutions placement, QIP (Chapter VI) | |
|---|---|---|---|
| Who can subscribe | Existing shareholders on the record date fixed for the issue (reg 2(1)(xx)). Entitlements can be renounced; the ICDR also provides for named “specific investors” in some cases (reg 77B). | A select person or group of persons, on a private placement basis (reg 2(1)(nn)). Needs a special resolution of shareholders (reg 160). | Qualified institutional buyers (QIBs) only, on a private placement basis (reg 2(1)(tt)). |
| Price rule | The issuer decides the price before the record date is determined (the record date is set in consultation with the designated stock exchange). The price must not be below face value (reg 73). No market-price formula. | A floor price from a formula tied to market prices, or a valuation for infrequently traded shares (regs 164, 165). | Not below the average of the weekly high and low of closing prices over the two weeks before the relevant date; a discount of up to 5% is allowed with shareholder approval (reg 176). |
| Reference date for the price | Not applicable: no formula. | “Relevant date”: 30 days before the shareholders’ meeting (reg 161). | “Relevant date”: for equity shares, the date the board (or its authorised committee) decides to open the issue; convertible securities have an alternative (reg 171). |
| Restriction on selling | None in Chapter III for ordinary shares. SR (superior voting) shares received by an SR holder stay locked in until conversion (reg 62(4)). | Lock-in, which differs for promoters and others (reg 167). | Not sold for one year from allotment, except on a recognised stock exchange (reg 178). |
| Shareholder vote | Not a requirement of the ICDR chapter itself. The Companies Act 2013 also applies. | Special resolution (reg 160(b)). | Special resolution, unless the QIP is a promoter offer for sale to meet minimum public shareholding (reg 172(1)(a)). |
The regulation also applies to convertible securities in each route, with their own tenure limits. This article follows equity shares.
Who can subscribe
Rights issue. The offer goes to shareholders on the record date, in proportion to what they hold. A holder who does not want to subscribe may be able to renounce the entitlement. Applications go through the ASBA facility (reg 76), and entitlements are credited to demat accounts before the issue opens (reg 77A). If the issuer or a promoter or director is a wilful defaulter or fraudulent borrower, promoters may renounce only within the promoter group or to specific investors the issuer has disclosed (reg 62(3)).
Preferential issue. The company chooses the allottees. Several conditions apply to who they can be: for example, no allotment to a person who sold or transferred shares of the issuer in the 90 trading days before the relevant date (reg 159(1)). Promoters or promoter group who subscribed to warrants and did not exercise them are ineligible for a year (reg 159(2)). The company must disclose the natural persons who ultimately own or control each proposed allottee in the notice for the shareholders’ meeting (reg 163(1)(f)).
QIP. Only QIBs. The ICDR lists them in its definitions: for example, registered mutual funds and alternative investment funds, public financial institutions, scheduled commercial banks, insurance companies, and provident and pension funds with a corpus of at least Rs 25 crore. A QIB that is a promoter or related to promoters cannot be allotted shares (reg 179(2)(b)). At least 10% of the eligible securities must go to mutual funds, with any unsubscribed part open to other QIBs (reg 179(2)(a)). Minimum allottees are two where the issue is up to Rs 250 crore and five above that, and no single allottee may take more than 50% of the issue size (reg 180).
How the price floor is set
Rights issue. There is no market-price formula. The issuer decides the price before the record date is determined, and the regulation requires only that it is not below face value. The price is disclosed in the letter of offer (reg 73).
Preferential issue, shares listed for 90 trading days or more. The price must be not less than the higher of two figures: the volume-weighted average price (VWAP) over the 90 trading days before the relevant date, and the VWAP over the 10 trading days before it (reg 164(1)). If the company’s articles give a method that produces a higher floor, that higher floor applies. Illustration with invented numbers: if the 90-day VWAP is Rs 100 and the 10-day VWAP is Rs 108, the floor is Rs 108.
The regulation also says what counts as “frequently traded”: traded turnover on a recognised exchange in the 240 trading days before the relevant date of at least 10% of the total shares of that class (reg 164(5)). For shares that are not frequently traded, the issuer sets a price using valuation parameters such as book value and comparable trading multiples, with a certificate from an independent registered valuer (reg 165).
Additional rules in the same chapter:
- If listed for fewer than 90 trading days, a different test applies, with a recomputation after 90 trading days and a top-up payable if the recomputed price is higher (reg 164(2) and (3)).
- A preferential issue that may change control, or allot more than 5% of the post-issue fully diluted capital to one allottee or allottees acting in concert, needs a valuation report from an independent registered valuer. The floor is then the higher of the formula price, the valuation price and any price under the articles. Where control may change, the report also covers control premium and a committee of independent directors must give a reasoned recommendation (reg 166A).
- Preferential issues to not more than five QIBs use the 10-trading-day VWAP floor (reg 164(4)).
QIP. The floor is the average of the weekly high and low of the closing prices of the same class of shares on the exchange with the highest volume, over the two weeks before the relevant date. This article repeats the regulation’s wording: the text does not spell out how the weekly values are combined, so no worked example is given. The issuer may offer a discount of up to 5% on that price if shareholders approve it in the special resolution (reg 176(1)). With an invented floor of Rs 200, a 5% discount would permit a price down to Rs 190. A price for convertible securities is fixed by the relevant date in the resolution (reg 176(2)).
Two things all three share: the formula prices for preferential issues and QIPs are adjusted for events such as bonus issues, rights issues, splits and consolidations (regs 166, 176(4)), and a material-price-movement exclusion linked to the listing regulations can apply (reg 166(2), reg 176(5)).
What limits selling afterwards
Rights issue. Chapter III contains no lock-in for ordinary shares. The one lock-in it mentions is for SR shares: an SR holder cannot renounce rights, and SR shares received stay locked in until conversion (reg 62(4)).
Preferential issue. The lock-in runs from the date of trading approval granted by the exchanges (reg 167):
| Allottee | Lock-in under reg 167 |
|---|---|
| Promoters or promoter group, up to 20% of the issuer’s “total capital” as defined there | 18 months from trading approval |
| Promoters or promoter group, shares above that 20% | 6 months from trading approval |
| Anyone else | 6 months from trading approval |
| Convertible securities or warrants not listed on exchanges | 1 year from allotment |
Further points: the allottee’s entire pre-existing shareholding in the issuer is locked in from the relevant date to 90 trading days after trading approval (reg 167(6)); shares allotted under certain stressed-asset resolutions have a one-year lock-in (reg 167(4)); and an allottee who becomes a promoter because control changes gets the promoter lock-in (reg 167(7)). Until trading approval is granted, the allotted shares cannot be transferred at all (reg 168(2)).
QIP. This is a transfer restriction rather than a lock-in with a trading-approval clock. For one year from allotment, the allottee may not sell the securities except on a recognised stock exchange (reg 178). A sale through an exchange is therefore not restricted by this regulation.
What to compare when you read a live announcement
When a company announces one of these, the document you open points you to the clauses above:
- Rights issue: the letter of offer, with the issue price, entitlement ratio and record date.
- Preferential issue: the notice of the general meeting and its explanatory statement, which must state the relevant date, objects, allottee details and the price or the formula (reg 163).
- QIP: the placement document, filed with the exchanges, and the board’s decision date, which fixes the relevant date.
Each of these is on the stock exchange announcements page for the company. For where the exchanges publish them, see the guide to company filings. For the other corporate actions in this series, return to the corporate actions guide.
Scope of this comparison
This is the ICDR only. Other rules also apply to these issues, including the Companies Act, 2013, the listing regulations and the takeover regulations, and are not covered here. ICDR text can be amended; the version used is the consolidated PDF SEBI shows as amended up to 21 March 2026.
Basis of these figures
Every regulation number, period, percentage and rupee threshold above is taken from the SEBI consolidated text of the ICDR Regulations, 2018 (amended up to 21 March 2026), Chapters III, V and VI and regulation 2. Prices in the worked illustrations are invented. Where the regulation says a matter is “as specified by the Board” (for example the rights issue period), this article leaves it out.