DVRs getting their due!

There are a few DVRs or Differential Voting Rights currently in the limelight. DVRs are not bonds, they are like any other equity share but as the name suggests, carries differential voting rights – this means they actually fewer voting rights than equity shares but these lower voting rights are compensated usually with a much higher dividend payout.  The good part about DVRs is that because investors are ready to relinquish some of their voting rights, they get the shares at much discounted rates but higher dividends. This is a great instrument for small retail investors who are not really seeking any voting rights in the company but are rather looking at higher returns via dividends – usually it is a dividend 5% higher than ordinary shares dividend.

Usually, DVRs in developed countries trade at 10-15% discount to the ordinary shares but here in India, the difference between DVRs and ordinary shares is around 50%.  And this anomaly is now being corrected. Starting June, this month, the S&P BSE Indices, the index provider for the BSE, has announced the inclusion of differential voting rights shares (DVRs) into the main indices, including the Sensex, the S&P BSE 100, S&P BSE 200 and S&P BSE 500.

This is a great move for investors as it will now bring down the gap between the price of DVRs and quoted stock price. This is also a very good to increase the demand for DVRs, which in turn might prompt more companies to go for DVRs. Currently, apart from Tata Motors, we have DVRs from Jain irrigation, Pantaloon Retail and Gujarat NRE Coke.