Basics of Stock Market - Beginner

DVR shares meaning

DVR stands for Differential Voting Rights. DVR shares are similar to ordinary equity shares, but they provide fewer voting rights for shareholders. DVR shares have the option of having a greater or lower voting rights than ordinary equity shares. Indian regulations prohibit companies from issuing equity shares with higher voting rights. DVR shares have lower voting rights than ordinary shares.

DVR shares are different from Ordinary shares in that they have voting rights. Also, DVR shares receive higher dividend.

These shares can be traded on stock exchanges in the same way as ordinary shares. However, DVR shares are typically traded at a discount.

Among the Indian companies that have issued shares with differential voting rights are Pantaloon retail and Tata Motors.

Investors get the following benefits from DVR Equity shares:

  • A shareholder will not only have voting rights but all other rights such as right share issue and bonus shares will remain intact.
  • DVR shares are often offered at a lower price than ordinary shares. Therefore, a smaller investment amount is needed.
  • DVR shares pay a higher dividend than regular equity shares.

Why do companies issue DVR shares

There are currently very few DVR shares-eligible companies. Let's now look at the benefits of DVR shares.

  • DVR shares allow companies to decide how much power they want to dilute. This allows them to retain control of their finances and can raise capital.
  • The company has the option to decide how many voting rights each shareholder will receive and what type of shares it will issue.
  • It protects against hostile takeovers. Equity shares that come with voting rights can allow investors to hold majority of the company's management.

These shares are best for who?

DVR shares provide a different option for both investors. Retail investor and institutional investor, especially those who aren't certain about voting rights, may see economic value in the form of high-discount offer. DVR shareholders receive incremental dividends.

Why retail investors should invest

DVR shares can be a good investment for long-term investors. They are especially useful for investors who do not want to vote but are interested in higher dividends. DVR shares can be listed just like ordinary shares. DVR shares can be traded at a discount because they provide limited voting rights to shareholders. Investors can benefit from the price differentiation between DVR shares, normal shares, and DVR shares.

Why are DVR shares in India not being taken in a large way

DVR shares are a great investment tool. It is an excellent way to increase dividends for retail investors who are not able to vote at AGMs. You can get a DVR at a significant discount. DVR shares in India have yet to take off in a significant way.

  • DVR shares are difficult to liquidate as institutions may not be keen to participate.
  • According to SEBI, DVR shareholders cannot receive a higher dividend than normal shareholders. The dividend differential in DVR shares is not attractive enough to make investors excited. This is one reason why DVRs in India have not seen a lot of success.
  • Institutional investors, who do not have voting rights, are also reluctant to invest in equity.

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