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What Corporate Actions Are Supported On Portfolio

01 Jun 2023

Managing a portfolio of investments requires staying informed about corporate actions undertaken by companies in which an investor holds shares.

Corporate actions are events initiated by a company that can impact its stock price and the rights and obligations of shareholders. With the advent of online investment platforms and portfolio management tools, investors now have access to timely information and support for various corporate actions.

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In this article, we will explore the corporate actions supported on portfolio management platforms, providing a comprehensive overview of these crucial events.

What are the different types of corporate action?

Corporate actions can be classified into two types on the basis of their nature and three types on the basis of their implementation. 

On the basis of their nature:

  • Cash and carry: These corporate actions involve the disbursement of cash to investors like dividend payouts, interest payments, etc.
  • Non-cash and carry: These actions involve the exchange of intangible resources among businesses and investors like stock splits and bonuses, mergers, etc.

On the basis of their implementation:

  • Voluntary Actions: Voluntary corporate actions are initiatives that give shareholders the freedom to decide whether to participate.
  • Mandatory Actions: Mandatory corporate actions require shareholders to take specific actions. These actions are binding, and shareholders must comply with them. 
  • Mandatory Actions with an Option: Mandatory actions with an option combine elements of both voluntary and mandatory actions. Shareholders are required to take action, but they are also given the choice to select from available alternatives.

Why are corporate actions performed?

  • Corporate Restructuring: Corporate actions are often employed to restructure or reorganise a company's operations. This can involve spin-offs, de-mergers, or corporate divisions to focus on core businesses, separate underperforming units, or unlock value for shareholders. Restructuring actions aim to improve operational efficiency, streamline business operations, and optimise resource allocation.
  • Financing and Raising Capital: Corporate actions like rights issues, preferential allotments, and private placements enable companies to raise additional capital to fund expansion plans, acquisitions, research and development, debt repayment, or other strategic initiatives. These actions allow companies to strengthen their financial position and support their growth objectives.
  • Shareholder Wealth Creation and Communication: Corporate actions serve as a means of engaging and communicating with shareholders. Annual reports, investor presentations, and corporate announcements keep shareholders informed about the company's performance, strategy, and future prospects. Companies utilise corporate actions to foster investor confidence, build trust, and maintain a positive relationship with shareholders. 

What are the various types of corporate actions?

1. Dividends and Interest Payments:

Dividends and interest payments are common corporate actions that provide returns to shareholders and debt holders, respectively. Broking platforms facilitate the seamless tracking of dividend announcements, payment dates, and credited amounts. This information allows investors to monitor and manage their cash flows effectively.

2. Stock Splits and Bonus Issues:

Stock splits involve dividing existing shares into multiple shares to increase liquidity and reduce the share price. Bonus issues, on the other hand, involve issuing additional shares to existing shareholders as a reward or dividend. Broking platforms keep investors updated on such corporate actions, ensuring accurate tracking of share quantities and adjusted share prices.

3. Rights Issues:

Rights issues enable existing shareholders to purchase additional shares of a company at a discounted price. Broking platforms provide notifications and facilitate the application process, allowing investors to participate in rights issues seamlessly. Investors can assess the impact of rights issues on their portfolio and make informed decisions regarding their subscription to the new shares.

4. Mergers and Acquisitions:

Mergers and acquisitions involve the consolidation of companies or the acquisition of one company by another. Broking platforms provide information on the terms of the deal, exchange ratios, and key dates. This enables investors to assess the impact of the transaction on their portfolio and take appropriate actions, such as voting on the proposal or tendering their shares.

5. Buybacks:

Share buybacks occur when a company repurchases its shares from the market. This corporate action can be a signal of management's confidence in the company's prospects. Broking platforms notify investors of buyback announcements, allowing them to track the progress of the buyback programme and assess its impact on the company's share price and financials.

6. Corporate Announcements and Events:

Broking platforms also provide updates on important corporate announcements and events, such as earnings releases, annual general meetings, board meetings, and regulatory filings. These notifications help investors stay informed about the latest developments and make informed decisions based on the company's performance and strategic decisions.

7. Delisting and Bankruptcy:

In unfortunate situations where companies undergo delisting or bankruptcy proceedings, brokerage platforms provide information regarding the process and timelines. This allows investors to evaluate their options, such as selling their holdings before delisting or assessing potential recoveries in bankruptcy proceedings.

The Takeaway

Corporate actions significantly impact the value and dynamics of investment portfolios. Portfolio management platforms play a crucial role in supporting investors by providing timely information and facilitating seamless management of various corporate actions. By utilising these platforms, investors can stay informed about dividend payments, stock splits, rights issues, mergers and acquisitions, buybacks, corporate announcements, and other critical events. This empowers investors to make well-informed decisions, align their portfolios with changing market dynamics, and optimise their investment strategies for long-term success.

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