Differential Voting Rights (DVR) shares provide you, as a shareholder, with either higher or lower voting rights compared to ordinary shareholders of the company. When you have higher voting rights in a ratio of 10:1, you get 10 votes per share held. Conversely, lower voting rights in a ratio of 1:10 means you have 1 vote for every 10 shares held.
However, Indian regulations prohibit companies from issuing equity shares with higher voting rights. As a result, the DVR shares available in the market typically have limited voting rights. These shares trade on the stock exchange similar to ordinary shares but often at a discounted price and with a higher dividend.
Example: Tata Motors DVR
A Tata Motors DVR has 10% voting rights compared to an ordinary Tata Motors share.
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Tata Motors | Tata Motors DVR |
| Voting Rights | 1:1 (1 voting right per share.) | 1:10 (1 voting right for every 10 shares held.) |
| Dividend payout | Lower dividend than Tata Motors DVR | 5% more dividend than Tata Motors |
Reasons for issuing DVRs
- Prevention of hostile takeover: Since companies issue DVRs with limited voting rights, they do not dilute the promoters' voting rights and make it difficult for hostile takeovers.
- Bring in passive/retail investors: You, as a passive/retail investor, may not want to indulge in the managerial operations of a business in which you are investing. In most cases, you are looking only to make profits. DVR shares are ideal as you can focus on the dividend generation aspect, without needing to deal with the decision-making aspect of the company. Companies offer DVR shares at a discount compared to ordinary shares because of the lower voting rights. In turn, you can acquire more shares at a lower price, thus increasing your dividend earning potential.