Differential Voting Rights (DVR)

Normally One share corresponds to One Vote.The share holder can excerise this right to vote during accepting or opposing certain resolution or decision of the company that has been put up for shareholder's approval .

But there are certain category of shares , which are issued with lower voting right and lieu of surrendering their voting rights these shares usually have a higher dividend yield . These type of shares are called DVRs

For example, Tata Motors has DVR listed on the Indian stock market and each of the Tata Motor DVR  has 1/10 voting right , which means, you would need 10 Tata Motor (DVR) shares for to muster One Vote. And in lieu of this lower voting right , each DVR share enjoy 5% higher dividend then a normal Tata Motor share,  that is, if Tata Motor were to declare 10% dividend , DVR are eligible for a 15% dividends

What's in it for Investors ?
Shares with DVR, are mainly targeted at small or retail investors.When small or retail investors invest in a company they are not interested in running or in management of the company and they hardly exercise their voting rights as they are only look for financial returns.With higher dividend yield , retail investor's needs for greater financial returns is met

What's in it for Management ?
Any management which issues shares is always concerned about diluting their voting rights and hence their control on the company and hence increase the risk of a hostile take overs . But with DVR , managment get to raise money from the market , without proportionate dilution of voting rights.

In India Tata Motors, Pantaloon Retail and Gujarat NRE Coke have issued DVR shares .

Pros:

• Higher Dividend Yields
• Price difference between normal share and DVR shares must be about 25 % but in india the difference is much more than that ( DVR are less priced then normal share )

 Cons:

• Liquidity, that is number of people buying and selling these shares are extremely low , this may be due of lack of knowledge . So investor may have problem when selling these shares .

Should you Invest ?
If the fundamentals of the under lying company is good , DVRs are an ideal investment vehicle for the retail investors.
 
So in the uniform world of share holdings these shares are just different.
 

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