Q. I own 532 shares in the Commonwealth Bank (CBA) and I read with interest that I am able to buy additional shares at a discount to the market price.  Should I consider buying the extra shares?

A. On the 12 August, CBA announced that it is looking to raise approximately $5 billion in a rights issue to existing shareholders.

If you owned shares in CBA on the 11 August 2015, you will be entitled to participate in the capital raising.  If you acquired shares after this date you are not eligible.

For eligible shareholders you will be entitled to buy 1 share for every 23 CBA shares you own at an offer price of $71.50 per share.  Entitlements are rounded up to the nearest whole number of shares.  So in your case you will be eligible to purchase up to 24 shares at this price.

You are not obliged to take up your full entitlement.  You will have the right to sell or transfer all or part of  your entitlement prior to the 1 September.  If you do not take up the offer or sell or transfer the offer prior to the closing date, the offer will lapse. The closing date to accept the offer is 8 September.

The advantage of participating in this type of offer is that you usually have the opportunity to acquire additional shares in a company at a discount to current market price. This is to encourage existing shareholders to participate in the offer.   In this case, the offer represents a discount of 10% to the closing price of CBA shares on 11 August.

The offer price is fixed and the discount to market price will vary depending on the prevailing market price of CBA shares at the time of the offer close. So if the CBA share price was to fall below the offer price, there would be no discount to the market price and in fact you would pay a premium to market to participate.

Normal rules apply for Capital Gains Tax purposes, so if you were to sell the shares into the future, the cost base of the shares will be the price you paid.  So make sure you retain records of the purchase for future reference.  As an individual, if you hold the shares for less than 12 months, you will not be entitled to the 50% discount on the Capital Gains.

Rights issues increase the number of shares on issue and may have a dilutive effect on earnings per share and may impact future dividends.

The risks associated with participating in this type of offer  will be contained in the offer document.  All investors should read this section of the document and determine if investing is appropriate to their circumstances.

Shareholders are expected to receive notice of their personal entitlement, an acceptance form and the offer booklet on or after Friday 21 August.

CBA have built an calculator to determine your entitlement. Visit www.comsec.com.au for further information.

Follow Andrew on Twitter @AndrewHeavenFP. This article was originally published in The Australian