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Discover how share warrants function, their various types, and how they offer both flexibility and risk in the investment ecosystem.
A share warrant is a financial instrument that grants the holder the right, but not the obligation, to buy the company’s shares at a pre-agreed price in the future. It is often used as a fundraising tool and can be an attractive option for both investors and companies. This article explores what share warrants are, their types, how they work, and what investors should consider before dealing in them.
A share warrant is a financial instrument that gives its holder the right—but not the obligation—to purchase a company's equity shares at a specific price (known as the exercise price) within a defined period. These are typically issued directly by the company, often during fundraising events such as rights issues or as part of convertible instruments. Unlike exchange-traded options, share warrants may or may not be traded on stock exchanges, depending on whether they are detachable or non-detachable.
Warrants are a way for companies to attract investment, providing potential upside for investors if the company's share price rises above the exercise price before the expiry date. If exercised, the investor pays the agreed amount to buy the shares, which may increase the total share capital of the company.
They give holders the right to purchase company shares in the future, offering a potential investment opportunity without upfront ownership.
Each warrant specifies an exercise price and an expiry date by which the holder must act to convert the warrant into equity.
Unlike options which can be traded on derivative markets, warrants are issued by the company and may impact its capital structure when exercised.
Some warrants are issued along with other securities (like bonds or preference shares) and can be traded separately—these are detachable. Others must be exercised with the parent instrument—these are non-detachable.
These can be traded independently from the bond or equity they are issued with.
These remain attached to the original instrument and cannot be traded separately.
When an investor receives or purchases a warrant, they acquire a contractual right to buy shares at a future date. If the stock price rises above the exercise price, the warrant becomes profitable. Otherwise, it may expire worthless.
Example: A company issues a warrant allowing purchase of shares at ₹100. If the market price rises to ₹120, the warrant holder can exercise the right and gain ₹20 per share (minus any premium paid).
Leverage potential: Offers upside exposure with limited initial capital
Capital raising for companies: A flexible tool to attract investors
Customisable terms: Issuers can define strike prices, expiry, and volume
Dilution of existing shareholders
Time-bound instrument—may expire worthless
Market volatility can affect value
Share warrants can be a useful instrument for raising capital and for investors seeking leveraged exposure to a company’s stock. However, they also carry risks, especially due to their expiration nature and sensitivity to price movements. Understanding how they function and the associated risks is essential before investing.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
A share warrant gives the holder the right, but not the obligation, to buy a company’s shares at a predetermined price within a certain timeframe. It’s a way to participate in a company’s potential upside without immediate ownership.
Warrants are issued directly by the company and may lead to new share issuance, whereas options are standardised contracts traded on regulated exchanges. This makes warrants more tailored but potentially less liquid.
Yes, some share warrants—especially detachable ones—can be traded on exchanges, but this depends on how they are structured by the issuer. Non-detachable warrants must be exercised along with the associated security.
Yes, because the warrant only has value if the underlying share price exceeds the exercise price before expiry. If not exercised in time, the warrant can expire worthless, leading to a complete loss of investment.
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