If you’re on this blog, you must be wondering what is a DVR share and why are only a handful of companies issuing it. That’s what we’re going to address in this blog!
Fun fact: Tata Motors issued the first DVR share in 2008. After that, only three more companies issued DVR shares. Though Tata Motors DVR has been part of Nifty Stocks since April 1, 2016.
What are Ordinary Shares?
Before learning about DVR shares, let’s first understand ordinary shares. When you see a company doing well in the market and want to be a part-owner of the company, you will have to invest in ordinary shares.
The thing is, nobody refers to such equity shares as “ordinary” because they’re commonplace. Investing in ordinary shares will give you voting rights to participate in the critical decision-making process of the company.
For example, the company will call a meeting with all its shareholders if it wants to make an important business decision. After all, these decisions have the potential to impact every shareholder’s potential profits.
What are DVR Shares?
DVR shares stand for Differential Voting Rights shares. They are similar to ordinary shares. But if you invest in a DVR share, you will have to sacrifice the privilege of voting rights to get higher dividend earnings.
Small and retail investors are not bothered about voting rights during investing, and they are known to hardly participate in company voting during Annual General Meetings.
For them, sacrificing the voting rights to get an additional 10-20% return on the dividend is always a winning bid. When you invest in share market, you would naturally consider DVR shares as a source of dividend income.
Difference Between Ordinary Shares and DVR Shares
Let’s understand the difference between Ordinary Shares and DVR shares.
|Ordinary Shares||DVR Shares|
|Ordinary shares usually have 1 voting right attached to each share. So during online investing, if you purchase one ordinary share, you will be allowed to cast 1 vote in the company’s decision-making process.||DVR shares either don’t have voting rights or lower voting rights as compared to ordinary shares. When you purchase DVR shares, you can’t participate in the company’s decision-making process|
|Ordinary shares have a lower dividend as compared to DVR shares. This is the price that shareholders pay for voting and making important company decisions.||DVR shares provide higher dividends as you will be sacrificing your voting rights. Generally, DVR shares provide a 10-20% higher dividend as compared to ordinary shares. So if you are planning to invest in the share market, then go for it.|
|Ordinary shares are sold at a higher price than DVR shares due to the voting rights offered.||DVR shares are often sold at a discount, so they are priced lower than ordinary shares|
Should You Invest in DVR Shares?
Here are the two most common reasons that might interest you to invest in DVR shares:
✔️ Better Dividends
“A bird in the hand is worth two in the bush” is an old proverb common in the investment world. Investors believe that a good dividend return is always better than less dividend as you can enjoy the cash now. DVR shares will offer you more dividend returns as compared to ordinary shares.
✔️ Sold at a Discount
DVR shares are generally sold at a discount. So it will be profitable for you to enjoy the growth of the company and higher dividends at a discounted rate. With a limited budget, you can buy more DVRs than ordinary shares.
Though DVR shares have several benefits, the general consensus is that they have failed to create an impression in the Indian market.
Tata Motors share gives a dividend advantage of just 5% while the voting rights are reduced by 90%, so the trade-off is not attractive for investors.
That said, every investor’s goal is different and whether or not DVR shares are the right investment for you would depend on your goals and risk appetite.
The difference between Ordinary Shares and DVR shares will hardly matter unless you’re sticking to a completely dividend-led portfolio.
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Happy Learning & Investing!
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.