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
How are the members of the board of directors of a corporation chosen and to whom do these board members owe their primary allegiance? The Members of a corporation's board of d

What are some of the government requirements imposed on a public corporation that are not imposed on a private, closely held corporation? Public corporations ought to tender au

How does a preemptive right protect the interests of existing stockholders? A preemptive right defends the interests of existing stockholders by providing them the opportunity to

You are the chief financial office (CFO) of Gaga Enterprises, edgy fashion design firm. Your firm needs $10 million to expand production. How do you think the process of raising th

what is the criteria for a good international financial system

Interest Rates The payment borrowers make for the use of the funds that they borrow and the payment that lenders demand for the use of the funds they lend (termed interest ) w

Determine the factors of financial risk by giving example W. T. L. Company's cost of long-term debt two years ago was 8 percent.  This 8 percent was found to represent a 4- per

Question 1: (i) How are education and economic growth connected? (ii) Explain how the export promotion trade strategy may be more growth promoting for developing economies,

Cost Principle - Accounting Principle According to this principle all the non-monetary assets of the business are display in the books of accounts at the historical cost that

7. Bill Peters is the investment officer of a $60 million pension fund. He has become concerned about the big price swings that have occurred lately in the fund’s fixed income sec