What is the difference between DVR and Normal Share? : Many Companies these days offer investors another option in the form of differential voting right (DVR Shares) to earn a bit more from a particular stock by simply giving up a few rights which they hardly exercise. In the year 2008 for the first time in India, Tata Motors came out with the DVR shares which later followed by other companies such as Gujarat NRE Coke, Jain Irrigation, Pantaloon India, and Future Enterprises, etc. Most investors are not familiar with the term DVR shares. In this blog, you will get detailed information about DVR Share and how it differs from a normal share.
What are DVR Shares?
DVR stands for Differential Voting Rights. Many people have misconceptions over DVR shares similar to preferred shares but in reality, they are totally different.
DVR shares are like ordinary equity except for the fact they have differential voting rights and differential dividend rights. The main benefit of invest in DVR Share is that holders of DVR shares receive a higher dividend compared to an ordinary shareholder. Although both DVR Shares and ordinary shares are traded at a discount as they have generally offer lesser voting rights.
Compared to an ordinary share, a DVR share may have higher or lesser voting rights. Indian regulation does not allow companies to issue share with higher voting rights. Also, DVR shares are also listed on the exchange and traded in a similar way like any ordinary shares.
Why are DVR Shares issued by companies?
Companies issue DVR Shares for prevention of a hostile takeover and dilution of voting rights. It also helps strategic investors who are looking at a reasonably big investment in a company. It helps the company in equity dilution without impacting the promoter’s stake in the company.
Moreover, Companies issues DVR shares for dilution of voting rights, bringing passive strategic investors and to prevent a hostile takeover, as these company generally issues DVR shares at a discounted price, it makes investors attractive towards these types of shares.
Why should retail investors invest in DVR shares?
As an investment point of view, DVR Shares are one of the good instruments for small investors who want a higher dividend and are not necessarily interested in taking a voting position. As DVR Shares are traded at a discount, investors can also take advantage of the price differential of DVR and normal shares.