I am about to create a light version of an app of mine.
My idea is to have the same application and limit its functionality. For example: suppose my application allows 4 modes of operation. The lite version would contain the first mode unlocked and then, if the user selects one of the other modes, show a message saying these other modes are just available in the full version. Then a BUY NOW button would be provided.
Is this possible to do? I mean, is it against Apple rules?
Limited functionality applications are fine, but a time limited or use limited application is not.
Also, iPhone development questions should be posted on stackoverflow.com
Having a light version of your application that is for free is a common pattern. You should opt to use the same codebase for both applications as this will significantly reduce your development overhead.
Disabling certain features can be easily done via plist configuration or checking the bundle identifier which will be different for your light/full version. Combine this with an automated build process and there is almost no friction.
You can allow users of your light version to buy the full version via an In-App-Purchase. Here's the Apple docs on that.
That's not OK. See https://developer.apple.com/iphone/news/archives/september2009/
"Only display the UI for what your "Lite" version will do. Grayed out menu commands, "more track/car choices" you can see but not select, etc. makes your "Lite" version feel more like a commercial than a product, and an annoying and ineffective one at that."
So you can only display the mode the application actually contains. You can have an 'Upgrade to Pro' screen that lists the modes available in the full application but you can't have the same UI and the buttons to nothing.
NeilInglis has it right. In addition, I would suggest spending 10 bucks and download both the lite and full versions of some of the most popular apps. That will show you how to manage light versions.