What does record date and ex-date mean?
Record date: The record date is when the company checks its records to identify the eligible shareholders for a corporate action. Shareholders holding the shares in their demat accounts on the record date are eligible for corporate actions such as entitlement of rights shares, bonus shares, stock splits, dividends, etc.
Ex-Date: The date on which a stock starts trading without the benefit of corporate action, i.e., ex-benefit, is known as the ex-date. To be eligible for corporate action, the client needs to purchase shares at least two days before the record date for the stocks to be credited to the demat account on the record date. So ex-date or the date when stock trades without corporate action is one day before the record date. A stock will trade with the benefits of the corporate action or cum-benefit (i.e., cum-rights, cum-dividend, etc.) until the ex-date.
Assume that the record date for a corporate action is Wednesday. The ex-date for this stock is Tuesday, i.e., one trading day before the record date. The shares should be bought on or before Monday to be eligible for corporate action benefit. Until Monday, the stock will trade with the corporate action benefits and the stock will trade ex-corporate action from Tuesday. Shares purchased on Tuesday won’t be eligible for the corporate action benefits. See Why were the shares not eligible for corporate action benefits even though they were purchased before the ex-date?
If stock A has announced a dividend of ₹10 with a record date on Wednesday and is trading at ₹500 on Monday, Tuesday will be the ex-dividend date, and the stock price will be reduced by the dividend amount, i.e., ₹10. Visit zerodha.com/varsity/chapter/five-corporate-actions-and-its-impact-on-stock-prices/ to know more about how corporate actions affect stock prices.
Did you know: We are transitioning to the T+1 settlement mechanism system, which means that the ex-date and Record date will be the same from Jan 2023. See What does settlement cycle mean?