What are DVR shares?
Differential voting rights (DVR) shares give shareholders either more or less voting power than ordinary shareholders of the company.
In India, companies cannot issue shares with higher voting rights than ordinary shares.
This means that DVR shares typically have limited voting rights but are often traded at a discounted price and with a higher dividend.
Here is an example:
Let’s say a company issues DVR shares with 1/5th of the voting power of ordinary shares. This means that if you own 5 DVR shares, you will have the same voting power as one ordinary shareholder. However, you will also receive a higher dividend per share than ordinary shareholders.
Why might someone invest in DVR shares?
There are a few reasons why someone might invest in DVR shares:
- To earn more money: DVR shares often pay higher dividends than ordinary shares.
- To buy more shares with less money: DVR shares are usually cheaper than ordinary shares.
- To get less involved in the company: If you want to avoid making decisions about how the company is run, then DVR shares can be a good option. With DVR shares, you have less voting power than regular shareholders.
It is important to note that DVR shares are a risky investment strategy. If the price of the shares goes down, you could lose more money than you invested. You should only invest in DVR shares if you understand the risks involved.
Why does a company issue DVR shares?
Companies issue DVRs for two main reasons:
- To prevent hostile takeovers
- To attract passive/retail investors
DVRs have limited voting rights, which makes them less attractive to investors who want to control the company. This makes it more difficult for hostile takeovers to happen.
DVRs are also often offered at a discount compared to ordinary shares. This makes them more attractive to passive/retail investors looking to profit from dividends.
Sum up!
DVR shares are a type of share that gives shareholders different voting rights than ordinary shares. DVR shareholders typically have fewer voting rights than ordinary shareholders but receive higher dividends.
DVR shares can be a good option for investors who are more interested in receiving dividends than having a say in running the company. However, it is essential to note that DVR shares are a risky investment strategy, and you should only invest in them if you understand the risks involved.
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