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Wednesday, July 6, 2011

The Difference between Ex-Date and Record Date

Mr. Sharma was very happy as he was supposed to get hefty dividend of Rs.  63 per share for Patni Computer System shares which he purchased on 30/8/2010, the day on which Patni share was 14% cheaper than the previous day; but much to his chagrin Mr. Sharma did not get any dividend !
Why this happened?
This is because Mr. Sharma bought the share on ex-date and ex-date is the date on which share is sold without dividend; this is better called -share is sold Ex-dividend (without dividend).
Similar is true for ex-bonus and right shares  issuance.
If Mr. Sharma had bought shares one day earlier (i.e. on 29/8/2010) then he would have been entitled for the dividend.
In technical parlance, he would have  purchased the shares Cum-dividend (with dividend).
So in short, if investor wants to avail bonus shares, dividend or right benefits, he should buy shares at least one day prior to the ex-date.
On ex-date and onwards, investor shall not get the benefit of bonus, rights issue or dividend.
similarly ex-bonus and cum-bonus mean.
Now what is Record Date?
Record date is the date at which company sees its records to ascertain the owners of its shares.
This is the date on which investor should own shares to avail the benefits of dividend, right shares and bonus shares.
But what is the catch?
Here owning the shares means shares in the demat account of the investor. In India settlement is done on T+2 basis, that means after 2 days of the transaction date; hence usually ex-date is one day prior to the record date so that shares bought prior to the ex-date finds their place in the demat account of the investor on or before the record date.
The country where settlement is on T+3 or T+4 bases, ex-date usually shall be respectively 2 and 3 days prior to the record date.

Ultimately, who got the dividend?

And the answer is simple, the person who sold shares to Mr. Sharma!
 Seller sold the shares on the ex-dividend date and settlement happened on T+2 day i.e. one day after the record date, and as on the record date sellers name was on the books, seller got the dividend.
This was the reason Patni Computer's share opened at 
Rs. 485 on the ex-date, which was Rs.  57 less than its previous close, as sellers selling on ex-date were entitled for the dividend of Rs. 63.


madhavrao mahajan said...

Nice explanation

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