Record Date and Ex-Dividend Date in India
Are you someone who hears the dividend-related dates frequently, but fails to interpret them? So, don’t worry.
Let’s understand the significance of the dividend-related dates (i.e. record date vs ex-dividend date vs payment date) in this blog.
If you hold shares in a company, then you must be familiar with terms like ex-dividend date, record date, payment date, etc. However, there is a very subtle difference between all these terms.
Generally, there are four important dividend-related dates that every investor should know.
- Dividend Declaration Date
- Record Date
- Ex-Dividend Date
- Payment Date
Firstly, we need to understand what does the dividend declaration date means?
Dividend Declaration Date
The first step in the process is the declaration of dividends. It is the date on which the Board Members of a Company declare the dividend and share the information about further dates.
Actually, the dividend is a payout to shareholders out of profits made by a company.
Let’s take up an example to better understand this concept,
if the face value (i.e. par value) of the stock is INR100/- and the company announces a 30 percent dividend then it means that a dividend of INR 30 per share will be paid out to shareholders.
Therefore, if you are holding 1000 shares of the company then you will receive Rs.30,000 as dividends.
But, the one important question which comes to our mind is, “Who will receive the dividends?”.
“How does the company determine which shareholders should be paid the dividends declared?”
That is where the Dividend Record Date comes into the picture.
What is the Dividend Record Date in India?
The record date is the cutoff date that determines the eligibility of shareholders to receive the dividend.
However, the shareholder records of a company to decide dividend entitlement is maintained by RTA i.e. registrar and transfer agents (for example Karvy, In-time Spectrum, etc.).
All the shareholders whose names appear in the records of the RTA at the end of the Record Date will be entitled to get the dividends.
Therefore, if a company declares the record date 16th June, then all the shareholders whose names appear in the company records as of the end of 16th June will be entitled to receive the dividends.
But, one question which comes to our mind is, When I buy shares I get the delivery of shares only after T+2 days which is on the second trading day after the transaction date.
That is where the concept of ex-dividend date comes into the picture.
What Does Ex-Dividend Date Mean?
The ex-dividend date is normally set one working day prior to the record date since India follows a T+2 (i.e. trade date plus two days) rolling settlement for delivery of shares. Therefore, the ex-dividend date addresses the above issue of the T+2 delivery date.
In the above scenario, since the record date is 16th June, the ex-dividend date will be 14th June. If there are trading holidays in between then the ex-dividend date will push back accordingly.
In other words, you have to purchase the shares of the company before the ex-dividend date so that you get the delivery by the record date and therefore are entitled to dividends.
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Listing Gains in IPO | Highest Listing Gain IPO in India
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Lot Size in IPO
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Record Date vs Ex-Dividend Date
Below is the 4 topmost comparison between Record Date vs Ex-Dividend Date
|Parameter||Ex-Date or Ex-Dividend Date||Record Date|
|Definition||Ex-Date comes before the record date but depends on the same. However, It is the last date by which shareholders can buy the shares to receive the dividend.||Record Date is the cutoff date that determines the eligibility of shareholders to receive the dividend.|
|Notify by||Two days prior to record date ( because of trade date plus two days settlement ).||Board Members of a Company|
|Buy Shares||Share has to be bought on or before the Ex-Dividend date.||NA|
|Eligibility for dividends is decided||No||Yes, the shareholder records of a company to decide dividend entitlement is maintained by RTA.|
Payment of Dividend
Payment of Dividend is the date on which the shareholders receive the dividend. It is the final stage in the dividend process in India.
The dividend amount will be automatically credited to your registered account. In a case, the bank mandate is not registered then your dividend cheque will be mailed to you at your registered address.
This date will depend on whether the payout is an interim dividend or a final dividend.
- Interim Dividend – The payout to the shareholders has to happen within 30 days from the date of the declaration of the dividend.
- Final Dividend – The actual payment of dividend only has to be made within 30 days of the AGM i.e. Annual General Meeting.
Record Date vs Ex-Dividend Date with Example
You might be confused with all of these dividend dates. Therefore, let’s understand the timeline with an example:
|Dividend Declaration Date||June 01, 2021||XYZ company announced a dividend|
|Ex-Dividend Date or Ex-Date||June 14, 2021||The date before which you must purchase the share to be eligible for dividend payment.|
|Dividend Record Date||June 16, 2021||This date is the cutoff date that determines the eligibility of shareholders to receive the dividend.|
|Payment of Dividend Date||June 30, 2021||The date on which XYZ company pays a dividend to its shareholders.|
Now that you’re aware of the dividend concept, let’s move on to answering the question ‘Do Share Prices Drop after Dividend in India?’
when the company announced the dividend, investors buy the share knowing that the dividend is about to be paid. So the share price goes up slightly.
On the other side, when a dividend has been paid out shareholders will dispose of the share at the pre-dividend announcement rate. Therefore, it will go down a bit.
The ex-dividend date or ex-date is the first trade date a stock trades without rights to the dividend.
This means that you bought before the ex-dividend date and held it until some time after the ex-dividend date,
and then you sold. You get the dividend.
If you sell your shares on or after ex-date, you will still receive the dividend.
The board of directors of a company will set a Record Date, which shall not be less than 10 nor more than 30 days.
Maximum 25 days after the record date