What is a DVR Share?
A DVR or Differential Voting Rights share is just like an ordinary equity share, but with voting fewer rights. For example, while a normal Tata Motors shareholder can vote as many times as the number of company shares he/she holds, those who hold DVR shares will need to hold 100 DVR shares to cast one vote. World over many famous companies such asGoogle, trade shares with different voting rights (DVR). In India it was Jagatjit Industries that was the first to do a DVR.
Companies issue DVR shares to prevention any hostile takeover and dilution of voting rights. This also helps strategic investors who are looking at a big investment in a company, but with fewer voting rights. Some of the companies who have issued DVRs, which are traded in NSE, include Tata Motors, Pantaloons, Jain Irrigation systems and Gujarat NRE Coke.
Is it suitable for retail investors to invest in DVR shares?
These are good instruments for long-term investors, typically small investors, who seek higher dividend and are not much interested in voting rights. Mostly, these shares trade at a discount to their corresponding equity shares and the discount rate ranges from 30-40%. If a retail investor decides to invest in a company's share based on the fundamentals, the same could be done in the company's DVRs.
The following reasons support investing in DVRs:
1. The discount factor - the company's share available at a lesser price for the same fundamentals. There is a chance of these discount being reduced, due to market forces. And this could provide some more appreciation, than the stock itself.
2. There is a chance of higher dividend being given than the regualar equity shares.(For e.g, Tata motors declared a higher dividend for DVRs).
What are the disadvantages?
DVR shares are usually thinly traded, which means these are illiquid stocks. Also, during bearish phase of the markets, the discount could widen and this could be a dampener factor. But, caution should taken that an investor should not invest, just because the DVR is available at a large discount.
Other than the few disadvantages mentioned above, the DVRs are good instruments for medium to long-term investors, provided the fundamentals warrant in investing in the company. Over time as investors feel more familiar with such type of instruments, more issues would follow and maybe the discounts would narrow.
Source : http://www.masterandstudent.com
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How will it affect the Bank Loan interest rates
SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.
SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand.
A DVR or Differential Voting Rights share is just like an ordinary equity share, but with voting fewer rights. For example, while a normal Tata Motors shareholder can vote as many times as the number of company shares he/she holds, those who hold DVR shares will need to hold 100 DVR shares to cast one vote. World over many famous companies such asGoogle, trade shares with different voting rights (DVR). In India it was Jagatjit Industries that was the first to do a DVR.
Companies issue DVR shares to prevention any hostile takeover and dilution of voting rights. This also helps strategic investors who are looking at a big investment in a company, but with fewer voting rights. Some of the companies who have issued DVRs, which are traded in NSE, include Tata Motors, Pantaloons, Jain Irrigation systems and Gujarat NRE Coke.
Is it suitable for retail investors to invest in DVR shares?
These are good instruments for long-term investors, typically small investors, who seek higher dividend and are not much interested in voting rights. Mostly, these shares trade at a discount to their corresponding equity shares and the discount rate ranges from 30-40%. If a retail investor decides to invest in a company's share based on the fundamentals, the same could be done in the company's DVRs.
The following reasons support investing in DVRs:
1. The discount factor - the company's share available at a lesser price for the same fundamentals. There is a chance of these discount being reduced, due to market forces. And this could provide some more appreciation, than the stock itself.
2. There is a chance of higher dividend being given than the regualar equity shares.(For e.g, Tata motors declared a higher dividend for DVRs).
What are the disadvantages?
DVR shares are usually thinly traded, which means these are illiquid stocks. Also, during bearish phase of the markets, the discount could widen and this could be a dampener factor. But, caution should taken that an investor should not invest, just because the DVR is available at a large discount.
Other than the few disadvantages mentioned above, the DVRs are good instruments for medium to long-term investors, provided the fundamentals warrant in investing in the company. Over time as investors feel more familiar with such type of instruments, more issues would follow and maybe the discounts would narrow.
Source : http://www.masterandstudent.com
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How will it affect the Bank Loan interest rates
What is Reverse Repo Rate in India
Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system. Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man.
CRR Rate in India
Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.
Relation between Inflation and Bank interest Rates
Now a days, you might have heard lot of these terms and usage on inflation and the bank interest rates. We are trying to make it simple for you to understand the relation between inflation and bank interest rates in India. Bank interest rate depends on many other factors, out of that the major one is inflation. Whenever you see an increase on inflation, there will be an increase of interest rate also.
What is Inflation?
Inflation is defined as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are less Goods and more buyers, this will result in increase in the price of Goods, since there is more demand and less supply of the goods.
What is SLR ?
SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.
How is SLR determined?
SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand.
What is the Need of SLR?
With the SLR (Statutory Liquidity Ratio), the RBI can ensure the solvency a commercial bank. It is also helpful to control the expansion of Bank Credits. By changing the SLR rates, RBI can increase or decrease bank credit expansion. Also through SLR, RBI compels the commercial banks to invest in government securities like government bonds..
SLR to Control Inflation and propel growth
SLR is used to control inflation and propel growth. Through SLR rate tuning the money supply in the system can be controlled efficiently.
Source : http://marketsdhoom.blogspot.in
