If you’re exploring investment options in the Indian stock market, you might have come across the term “DVR shares.” Let’s break down what DVR shares are, how they differ from ordinary shares, and what you should consider before investing.
What Are DVR Shares?
DVR stands for Differential Voting Rights. DVR shares are a type of equity share that provides shareholders with fewer voting rights compared to ordinary shares. In India, companies issue DVR shares to raise capital without significantly diluting the control of existing promoters. These shares are typically offered at a discount and may come with higher dividend payouts to compensate for the reduced voting power.
Key Features of DVR Shares
- Limited Voting Rights: DVR shareholders have fewer voting rights. For example, a DVR share might offer 1 vote for every 10 shares held, whereas an ordinary share offers 1 vote per share.
- Higher Dividends: To make up for the limited voting rights, companies often provide higher dividends on DVR shares. For instance, Tata Motors DVR shares offer a 5% higher dividend than its ordinary shares.
- Discounted Price: DVR shares are usually traded at a lower price compared to ordinary shares of the same company, making them more affordable for investors.
- Same Economic Rights: Apart from voting rights, DVR shareholders enjoy the same rights as ordinary shareholders, including receiving dividends, bonus shares, and rights issues.
Why Do Companies Issue DVR Shares?
Companies may choose to issue DVR shares for several reasons:
- Retain Control: Promoters can raise capital without significantly diluting their control over the company.
- Prevent Hostile Takeovers: Limited voting rights make it harder for external entities to gain control through share accumulation.
- Attract Passive Investors: Investors interested in financial returns rather than voting rights may find DVR shares appealing.
DVR Shares vs. Ordinary Shares
| Feature | DVR Shares | Ordinary Shares |
|---|---|---|
| Voting Rights | Limited (e.g., 1 vote per 10 shares) | Full (1 vote per share) |
| Dividend Payout | Higher to compensate for fewer votes | Standard |
| Share Price | Lower due to limited voting rights | Higher |
| Investor Suitability | Passive investors seeking dividends | Investors desiring voting power |
| Liquidity | Generally lower | Higher |
List of DVR Shares in India
As of now, only a few companies in India have issued DVR shares:
- Tata Motors DVR
- Jain Irrigation Systems DVR
- Stampede Capital DVR
- Future Enterprises DVR
Pros of Investing in DVR Shares
- Affordability: Lower share prices make it easier for investors to enter the market.
- Higher Dividends: Enhanced dividend payouts can lead to better returns.
- Ideal for Passive Investors: Suitable for those more interested in financial returns than company governance.
Cons of Investing in DVR Shares
- Limited Voting Power: Reduced influence on company decisions.
- Lower Liquidity: Fewer buyers and sellers can make it harder to trade.
- Market Perception: Some investors may view DVR shares less favorably due to their limited rights.
Conclusion
DVR shares offer a unique investment opportunity, especially for those prioritizing dividends over voting rights. They provide a way to invest in companies at a lower cost while potentially earning higher returns. However, it’s essential to consider the trade-offs, such as limited voting power and lower liquidity. As with any investment, assess your financial goals and risk tolerance before investing in DVR shares.
