Demat Account: How to benefit from corporate announcements?
Corporate actions include various benefits for investors like dividends, bonuses, and rights issues. Staying updated on company announcements is crucial for investors to make informed decisions impacting stock prices and investment strategies.
Corporate actions encompass various benefits provided by a company to its investors, ranging from monetary dividends to non-monetary bonuses, equity dividends, and rights issues.
Among these, dividends stand out as one of the most common forms of rewarding shareholders, involving the distribution of a portion of the company's profits to its shareholders. Public sector companies are particularly known for their consistent dividend payouts.
To capitalise on corporate actions, investors need to stay abreast of the announcements made by companies whose shares they hold in their demat accounts. Being proactive upon receiving such announcements is crucial, as they can significantly impact stock prices and investment strategies.
For instance, positive news, such as robust quarterly earnings or expansion plans, may prompt investors to retain their shares or even consider increasing their holdings. Conversely, negative developments might necessitate a reassessment of their investments or prompt selling.
Moreover, many brokerage firms offer comprehensive tools and comparison features within demat accounts. Investors should leverage these tools to compare their dividend-paying stocks with other stocks, enabling them to assess the dividend yield percentage.
Understanding dividend timelines
The most common corporate action announced by listed companies is dividends. Therefore, understanding the timeline for dividend payouts is crucial for investors aiming to maximise their returns from equity investments. Here's a breakdown of the important dates related to dividends:
Declaration date: This is the date when the Board of Directors of the company officially approves the dividend rate per share.
Record date: Set by the Board of Directors, the record date determines which shareholders are eligible to receive dividends. Shareholders whose names appear on the list at the end of the record date are entitled to receive dividends.
Eligibility for dividend: To qualify for receiving dividends, investors must have shares in their demat account by the record date.
Cum dividend date: This is the last date to purchase shares to become eligible for receiving dividends.
Ex-dividend date: On this day, the price of the company's equity share is adjusted to reflect the dividend payout. The stock exchanges determine and announce this date.
Payment date/issue date: Dividend payments must be completed within 30 days of approval. Eligible shareholders will receive the dividend amount before this date.
How do investors receive the benefits of corporate actions?
Investors typically receive shares, dividends, bonuses, or interest directly from the company's registrar. These benefits are deposited into their bank account or demat account, or they may receive them through a cheque or demand draft (DD).
On the other hand, if shares are held in a trading account or a pool account, investors receive shares, dividends, bonuses, or interest from their broker if they hold both a trading and demat account with them.
FAQs
Is it good to purchase shares through a rights issue?
Participating in a rights issue allows existing shareholders to increase their ownership in a company at a discounted rate. However, the decision to do so should be based on careful consideration of the company's financial performance and prospects.
Where can I find information about corporate actions announced by companies?
Corporate actions are typically communicated to shareholders directly by the company. Alternatively, if you're not a shareholder, you can access details of corporate actions from official sources such as the NSE and BSE websites.
Is there any difference between mandatory and voluntary corporate actions?
Mandatory corporate actions are initiated by a company's board and require automatic participation from shareholders. Conversely, voluntary corporate actions allow shareholders to decide whether or not to participate.
How do stocks typically behave following a stock split?
Prior to the stock split record date, there is often increased demand for the stock, leading to a rise in its price. After the ex-split date, however, the price typically adjusts according to the split ratio and may decrease further if investors opt to take profits.
Does corporate action in equities affect the derivatives segment?
In the derivatives segment, corporate actions typically result in adjustments to the lot size, price, or strike price of the underlying security. However, investors do not receive any direct corporate benefits in this segment.
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