The only thing most of us want from stocks is returns. That’s why many companies nowadays offer investors the option to earn a little more from a stock in exchange for sacrificing a few rights they rarely exercise. These shares, called differential voting right, or DVR, shares are catching the fancy of more and more stock investors.
　　The list of companies that have issued DVR shares includes Tata Motors, Pantaloon Retail India, Gujarat NRE Coke and Jain Irrigation. DVR shares were allowed in India in 2000.
　　 EXPLAINING DVR SHARES
　　DVR shares are like ordinary shares, but with fewer voting rights. These allow a company to dilute equity without a matching reduction in promoters’ stake. The aim of limiting voting rights is preventing hostile takeovers by separating economic interests and voting rights.
　　DVR shares are ideal for small shareholders as they rarely exercise their voting rights. This is because only a few understand the company’s affairs in such detail that they can influence its actions. They buy shares only to make money and so happily give away voting rights in favour of those who have management control.
　　DVR shares are priced lower at issuance and offer higher dividends; in return, the voting rights are limited. For instance, the holders of Tata Motors’ DVR shares can cast one vote for every 10 shares held. However, they get 5% more dividend than ordinary shareholders. On 18 July 2012, the company gave Rs 4.10 a share as dividend to DVR holders and Rs 4 a share to ordinary shareholders.
　　At times, companies issue DVR shares to fund large projects. This is of special help to those who do not want control of the company but are looking to take part in its growth by making a big investment.
　　According to the Companies Act, only a company that has been profitable for three years preceding the year in which it has decided to issue DVR shares and which has not defaulted in filing annual accounts and returns for the period can issue such shares. However, a DVR issue cannot exceed 25% share capital.
　　 FOR INVESTORS
　　The correlation between DVR and ordinary shares is high. “Prices of DVR shares move with those of ordinary shares,” says Vishal Jajoo, senior research analyst (private clients group), Nirmal Bang Securities. For instance, in 2012, the Tata Motors’ DVR shares rose over 95% as against 70% rise in ordinary shares. Similarly, Pantaloon Retail’s DVR shares returned over 113% in 2012 compared to the 102% rise in ordinary shares.

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