What does ex date and record date mean?
Record date: You are considered an eligible shareholder in the records of the company if you hold the shares on the given date which is also known as the record date.
The eligible shareholders are entitled to receive benefits or any changes whenever a company announces corporate actions such as entitlement of right shares, bonus shares, stock splits, dividends, etc.
Ex-Date: The date a stock starts trading ex-benefit i.e without the benefit of corporate action is known as the ex-date. In India, shares are delivered to your demat account after two trading days from the day of purchase. A stock is said to trade with the benefits of the corporate action or cum-benefit (i.e. cum-rights, cum-dividend, etc) up to 2 trading days before the record date after which it trades without the benefit or ex-benefit.
Let’s understand this with an example:
Assume the record date for a corporate action lies on a Wednesday -
1) The Ex date for this stock will be Monday i.e. 2 days earlier to record date
2) You will be eligible for corporate action if you purchase the stock latest by Monday or earlier than Monday
3) Up until Monday, the stock is said to be cum - corporate action i.e. it bears the benefits of the corporate action
4) Tuesday onwards the stock is said to trade ex-corporate action
5) If you buy the stock at any point post-Tuesday, you will not get the benefit of corporate action
You will always receive the shares you've purchased after 2 trading days except in the following scenarios:
- Settlement holiday - If the record date falls on a settlement holiday, you will receive the shares on the next working settlement day. Assume, in the above example, Wednesday was a settlement holiday. If you purchase the shares on Monday, you will receive them by Thursday (i.e. after the record date) and will not be eligible for the corporate action.
You need to purchase the stock at least one trading day before Monday so that the shares are available in your demat account as on the record date.
- Short delivery - If the seller on the other side of your trade fails to deliver the shares, it's considered to be short delivered. In this case, the exchange will conduct an auction and deliver the shares to your demat account generally by T+3 day. So, if you've purchased shares on Monday but due to short delivery, you get them on Thursday or later, you will not be eligible for the corporate action since you didn't have the shares in your account on the record date.