BAJAJ BROKING
June 02, 2025
10 mins read
Typically, in the Indian share market, equity investors get shares of a company in return for investments. This equity share also brings them the right to vote and participate in corporate decisions. However, there may be investors who are more focused on high returns and may not be much interested in participating in decision-making. To bridge this gap and offer a variety of investment types, DVR shares were launched in India in 2000.
Passive investors who are willing to reap long-term and high-return investments may consider DVR shares. The sacrifice made for voting rights is covered with higher dividends to the investors. If you are new to this concept or the share market, do not worry as we are here to simplify the topic for you. This guide will help you understand all about DVR share and the benefits of the same.
Introduced in 2000, Differential Voting Rights or DVR shares are capital instruments where investors get limited voting rights but higher dividends and returns. Although the liquidity is limited in this case, one can expect better returns and lower purchase value of the shares.
Through DVR, companies can raise capital without diluting promoters' control disproportionately. Ordinary shares usually observe the "one share, one vote" principle, but DVR shares may have a lower voting power, say one vote for ten shares held. To make up for this shortcoming, DVRs tend to have more dividend payments and are quoted at discounted prices compared to their normal counterparts.
DVR shares are issued by firms to entice investors who care less about getting involved in company governance than getting financial returns. This serves to preclude hostile takeovers since the diminished voting rights make it difficult for outside parties to acquire controlling interests.
Nevertheless, it should be noted that DVR shares have less liquidity, which could influence their marketability. For individual investors, DVR shares are a good choice if they are willing to trade voting rights for dividend income. The increased dividend and lower cost of entry make them an attractive choice for long-term investment schemes that generate passive income
The main purpose of issuing Differential Voting Rights is to raise funds without losing much control over the decision-making of the company. DVR shares give fewer voting rights than ordinary shares, enabling promoters to avoid dilution of decisional authority. The approach assists in protection against hostile takeovers since it becomes difficult for outsiders to acquire control through share building up.
Besides, DVR shares are issued at a lower price and usually carry greater dividend amounts, hence appealing to retail investors for financial gains rather than voting power. This method increases the investor base without undermining the governance of the company.
But companies have to stick to regulatory terms, e.g., that DVR shares cannot be more than 26% of the paid-up capital after the issue.
Some of the striking benefits of investing in differential voting rights are as follows:
Discounted Entry Price
DVR shares are generally cheaper than regular shares because of diminished voting power, so investors can buy more shares for the same investment.
Higher Dividend Yield
To offset less voting power, DVR shares tend to yield higher dividends. For example, Tata Motors DVR shares give a 5% greater dividend than its regular shares.
Suitable for Passive Investors
Investors are more interested in returns than in corporate governance, like DVR shares, as they can profit financially without participating in company decisions.
Capital Raising Without Diluting Control
Issuing DVR shares allows companies to raise capital while enabling promoters to retain decision-making powers, as these shares have limited voting rights.
Defense Against Hostile Takeovers
With limited voting rights, DVR shares make it more difficult for outside parties to take control, thereby safeguarding the company from hostile takeover attempts.
Luring Long-Term Retail Investors
With increased dividends and lower stock prices, DVR shares entice retail investors looking for stable returns, thus expanding the base of the investor.
The share market has its limitations, irrespective of the types of shares. In the case of DVR shares also, there are certain limitations. These are:
DVR shareholders enjoy far fewer voting rights than normal shareholders. For example, in Tata Motors, DVR shares hold one vote for ten held, while ordinary shares hold one vote per unit. This restriction prohibits investors from making decisions on behalf of the company.
Some of the regulatory constraints may be:
Issuance Cap
Indian companies are prohibited from issuing DVR shares beyond 26% of the total post-issue paid-up equity share capital. The cap restricts the degree to which companies can use DVR shares for fundraising.
Eligibility Conditions
For issuing DVR shares, certain conditions have to be met by companies, like having distributable profits for the last three years and not having defaulted in filing the annual accounts or repayment of deposits or interest:\ These are strict requirements that may be difficult for certain companies to comply with.
The following are the effects on liquidity:
Discounted Valuation
Since DVR shares have limited voting rights, they tend to be traded at a discount relative to their ordinary counterparts. Discounted valuation may reflect on the market capitalization of the company and may not necessarily capture the intrinsic value of the shares.
Lower Liquidity
DVR shares are normally subject to lower trading volume, resulting in lesser liquidity. This can further hinder investors to sell or purchase huge volumes without affecting the share price
Restricted Attraction of Institutional Investors
Institutional investors normally look for strong influence within the governance of firms. The diluted voting rights pertaining to DVR shares can restrict such investors from getting attracted to it, limiting the investor group.
The primary difference between the DVR shares and ordinary shares is that the ordinary shares also let investors enjoy the voting rights to their fullest. While in DVR shares, the voting rights are compromised and compensated with higher dividends. Some of the highlighting differences between the two are:
Parameter | DVR Shares | Ordinary Shares |
Voting Rights | Limited voting rights (e.g., 1 vote per 10 shares) | Full voting rights (1 vote per share) |
Dividend Payout | Often higher to compensate for limited control | Standard dividend payouts |
Market Price | Usually traded at a discount | Traded at market value |
Target Investors | Retail investors seeking higher returns | Institutional and retail investors |
Purpose of Issuance | Raise capital without diluting control | Standard capital raising and ownership transfer |
Regulatory Cap | Cannot exceed 26% of total post-issue capital | No specific cap |
Liquidity | Generally lower liquidity | Higher liquidity |
Risk of Hostile Takeover | Less risk due to restricted voting rights | More susceptible to takeovers |
Suitability | Best for passive investors | Best for active investors |
Valuation Perception | Traded below intrinsic value due to control limitations | Reflects full ownership and control value |
Now let's understand the differential voting rights with the help of a quick example:
A well-known instance of Differential Voting Rights (DVR) shares in India is Tata Motors DVR. Implemented in 2008, these shares were intended to enable the company to raise capital without watering down control for its promoters. Tata Motors DVR shares provide fewer voting rights than regular shares, that is, one vote per ten held shares. In exchange for this lessened power of voting, the company offers higher dividends on DVR shares.
This format is attractive to those investors who value monetary returns more than voting power. The DVR shares will generally trade at a lower price compared to regular shares and hence are appealing to retail investors who look for higher dividends along with cheaper entry costs. By means of DVR shares, Tata Motors was able to raise funds without diluting the promoter's voting power.
This method illustrates how DVR shares can be a strategic weapon for businesses to balance capital needs with governance issues. For more information on DVR shares, you can visit the ClearTax glossary on Differential Voting Rights.
If you are willing to purchase DVR Shares, here is something you must check out. Section 43 of the Companies Act, 2013, and the Companies (Share Capital and Debentures) Rules, 2014, explains the eligibility criteria. The eligibility criteria for DVR shares are as follows:
The AoA of the company should specifically authorize the issue of shares with differential voting rights.
The company should get approval for issuing DVR shares by a special resolution in a general meeting of shareholders.
The company should have submitted its financial statements and annual returns to the Registrar of Companies for the last three financial years with no irregularities.
The company should have a good track record of profitability for at least three financial years prior to issuing DVR shares.
The company should have settled all outstanding defaults in connection with
Payment of dividends
Repayment of deposits
Payment of interests
Redemption of debentures or preference shares
Repayment of loans taken from financial institutions and banks
Upon issue, the aggregate DVR shares should not be in excess of 26% of the aggregate post-issue paid-up share capital of the company.
The company should not have experienced a change in control or promoter group in the immediate past financial year
SEBI (Securities and Exchange Board of India) regulates the stock market in India. In the case of DVR shares, SEBI has certain regulations to be followed. These are:
Promoters or founders who occupy executive positions are the only ones who can be granted SR shares.
Net worth of the promoter group cannot be more than ₹500 crore, apart from their investment within the company.
SR shares should be retained for a period of at least six months before the submission of the red herring prospectus for an IPO.
SR shares can carry voting rights between 2:1 and up to 10:1 against ordinary shares.
The aggregate voting rights of the SR shareholders shall not be more than 74% of the aggregate voting power of the company after issue.
The SR shares are subject to lock-in for the time of conversion into ordinary shares or for a period of three years from the date of IPO, whichever is longer.
Inter-se transfer between promoters and pledging of SR shares are not allowed during the lock-in period.
SR shares get converted to ordinary shares after five years from the listing date.
This can be extended for another five years through a shareholders' resolution but not with the right to vote for SR shareholders.
Firms that issue SR shares should have at least 50% independent directors on their board.
Audit committees should be made up entirely of independent directors to ensure transparency and accountability.
SEBI's framework allows companies, especially technology companies, to raise capital from the capital markets while retaining promoter control, subject to strict governance standards and investor protection mechanisms.
Now that you know the meaning and purpose of DVR shares, what are your plans? Are you willing to be a part of DVR investors? Well, there are a few things to consider to be able to understand if or not you should invest in DVR shares:
DVR shares tend to pay greater dividends than common shares, offsetting their lower voting rights.
Owing to lesser voting rights, DVR shares usually trade at a discount, enabling investors to purchase shares at a lower price.
DVR stocks are appropriate for those who wish not to become involved in decision-making by a company but desire profits instead.
Coupling of greater dividends with lesser buying costs may result in better return on investment in the long run.
Including DVR stocks within an investment portfolio may diversify, smoothing out risk and reward profiles.
In short, DVR shares offer a lucrative investment option for those who want to earn more dividends and less entry fees, without the need to engage in corporate control. Nevertheless, it's needed to evaluate one's own financial objectives and tolerance of risk prior to investing.
SEBI’s regulatory framework for DVR shares strikes a balance between empowering companies—especially startups—to raise capital and protecting investor interests. By ensuring transparency, setting strict eligibility criteria, and limiting promoter control, SEBI promotes good governance. This makes DVR shares a viable tool for growth while maintaining accountability in the Indian corporate ecosystem.
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DVR (Differential Voting Rights) shares are equity shares that offer different voting rights compared to ordinary shares, often lower, but may provide higher dividends to compensate investors.
DVR shares have limited or no voting rights, unlike ordinary shares, but typically offer higher dividends or trade at a discount, making them suitable for passive investors focused on returns.
DVR shares typically have higher dividends and lower prices compared to normal shares, which makes them appealing to investors who want stable returns without being part of corporate decision-making processes.
Yes, DVR shareholders have restricted voting power, less control over important decisions. They could also have lower liquidity and possibly delayed appreciation in price relative to normal shares.
DVR shares in India are regulated by SEBI and the Companies Act, 2013, which ensure stringent eligibility, transparency, limits on issuance, and corporate governance in order to ensure protection of interests of investors and accountability.
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