A DVR is an abbreviation of Differential Voting Rights. It is like an ordinary equity share which provides fewer voting rights to the shareholders. As compared to the ordinary equity shares, DVR shares can have a higher or a lower voting right. But as per Indian regulation, companies are not allowed to issue equity shares with higher voting rights, resulting lower voting rights in DVR shares in India when compared to ordinary shares.
The basic difference between DVR shares and Ordinary shares is with respect to voting rights. Also, DVR shares receive higher dividend.
These shares are listed on stock exchange and are traded the same way as ordinary shares are traded, but DVR are mostly traded at a discount.
Tata Motors, Pantaloon retail, Gujarat NRE Coke are some of the Indian companies that have issued differential voting rights shares.
Benefits to the investors on buying DVR Equity Shares:
- Apart from voting rights, a shareholder will get all other rights intact such as bonus shares, right share issue, etc.
- DVR shares are usually offered at a discount when compared to ordinary shares, therefore less investment amount is required.
- Generally higher dividend is paid in DVR shares than in regular equity shares.
Why companies issue DVR shares?
Currently there are very few companies who have issued DVR shares. Now, let us see the advantages to the companies who issue DVR shares:
- By issuing DVR shares, company can decide on how much of its powers to dilute, also the company can retain control and raise money.
- The company can choose on how much voting rights to be given to each shareholder and what kind of shares to issue.
- It provides safeguard against hostile takeover as when equity shares are issued with voting rights, there can be a chance that investor can hold majority and takeover the control of company’s management.
Who should invest in these shares?
DVR shares offer a variation to both the investors i.e. retail investor and the institutional investor, particularly those who may not be certain about voting rights but may see the economic values in the form of high discount offer which is being made and DVR shareholders get incremental dividend.
Why retail investors should invest?
Ideally DVR shares are good instrument for long term investors, particularly those investors who are not necessarily interested in taking a voting position but who seek higher dividend. Though, like ordinary shares DVR shares are also listed in the same way. But, DVR shares are traded at a discount as these provide few voting powers to the shareholders. Due to price differentiation of DVR shares and normal shares investors can take advantage.
Why in India DVR shares not taken in a big way
DVR share is an extremely great investing tool. For retail investor who do not attend and vote in AGMs, it is a good way to earn higher dividends as one can get DVRs at a steep discount. But, till today in India DVR shares have not yet gone in a big way as:
- In DVR shares the liquidity is an issue as institutions are not keen to participate.
- As per SEBI, DVR shareholders are not permitted to receive higher dividend than ordinary shareholders. If we see in case of DVR share issue, the dividend differential is hardly attractive which does not lead the investor to get excited about it. This is also one of the major reasons why DVRs have not really taken off in a big way in India.
- Also, without voting rights, the institutional investors are by default not willing to invest in equity.