Types of equity securities , Financial Management

Types of equaty Securities

Equity securities, traditionally, are classified into two types when they are issued. They are: Common Stock, and Preferred Stock.
Common Stock

Unlike in the West, where we find different classes of common stock with differing voting rights and rights to income and assets of the company, the equity stocks of all Indian joint stock companies belong to just one class. The rights and privileges conferred on the shareholders are all the same and they are enjoyable in proportion to one’s shareholding. With the coming into force of the Companies Amendment Act, 2000, companies are now allowed to issue shares with disproportionate voting rights.

The investment community in India, however, has its own categorization of equity stock, which is not on the basis of voting or any other right, but on the basis of the behavior of prices (and returns) of equity stocks. These categories include Blue chips, Growth stocks, Income stocks, Cyclical stocks, Defensive stocks, Speculative stocks, Glamor stocks.

Preferred Stock

Preferred stocks are a hybrid between a common stock and a bond. They have  mixed features of both  equity shares and debt securities.  Each share of preferred stock is normally paid a guaranteed, relatively high dividend and has preference over common stock in the company's assets in the event of bankruptcy. In exchange for the higher income and safety, preferred shareholders miss out on large potential capital gains [or losses]. Owners of preferred stock generally do not have voting privileges. Preferred stock may have a convertibility feature into common stock. Preference dividend is payable only out of distributable profits. Generally, dividend on preference shares is cumulative. Hence, dividend not paid in one year has to be paid during the subsequent years before equity dividend is paid. All preference shares shall be redeemable within 20 years as per the Companies Act, 1956.

Preferred shares basically are higher in the pecking order in terms of who gets dividends or distributions first. Preferred shares may have the right to a certain amount of money before the common shares get any share, but at the same time these shares are non-voting.  If the company is on the verge of closing in any manner, then the preferred shareholders can get voting power and take charge of the management. During liquidation of a company, preferred shareholders are paid before any payment is made to the common shareholders.

Mutual Fund Shares

A Mutual Fund is an investment company that pools investors’ money to invest in a diversified portfolio of securities that is managed by a professional fund manager. The investments may include stocks, bonds, options, futures, currencies, treasury bills and money market securities. Individual or Institutional investors who buy shares of a Mutual Fund (MF) become its owners or shareholders. They can make money from these securities in two ways: a security can pay dividends or interest to the Fund, or a security can rise in value. The benefits come along with the investment risks faced by the Fund including the possible loss of principal.

Posted Date: 9/11/2012 1:03:13 AM | Location : United States

Related Discussions:- Types of equity securities , Assignment Help, Ask Question on Types of equity securities , Get Answer, Expert's Help, Types of equity securities Discussions

Write discussion on Types of equity securities
Your posts are moderated
Related Questions
Dev's Spa has cash of $50, accounts receivable of $60, accounts payable of $200, inventory of $150 and accured expenses of $100. What will be the value of the quick ratio?

(a) Lonesome Gulch Mines has a standard deviation of 42% per year and a beta of 0.10.  Amalgamated Copper has a standard deviation of 31% a year and a beta of 0.66.

Suppose the government wants to limit imports of a certain good.  Is it preferable to use an import quota or a tariff?  Why? Modification in domestic consumer and producer surp

Calculate the price of Winnebago stock (Winnebago has no debt so this is the market value of the firm seperated by the number of common shares outstanding.) from the cashflows you

Describe the sales forecasting process. Sales assumptions are a group effort. Marketing and Sales personnel usually provide assessments of demand and the competition.  Producti

Given that risk-averse investors demand more return for taking on more risk when they invest, how much more return is appropriate for, say, a share of common stock, than is appropr

FACTORS AFFECTING WORKING CAPITAL NEEDS OF FIRMS A large no. of reasons influences the working capital requirements of firms.  a number of them are as follows: 1. Nature of

a) IPod -Line / Mass production is most suitable given that Apple can sell the standardised product to mass markets across the world. Only small variations to the production proces

how would you judge the potential