Types of equity securities , Financial Management

Assignment Help:


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.


Related Discussions:- Types of equity securities

How to calculate the net income of a year, Is the net income of a year the ...

Is the net income of a year the money the company made that particular year or is it a number whose significance is quite doubtful? The net income of a year is not money that a

Calculate the average interest rate , At the end of 1922, your great grandf...

At the end of 1922, your great grandfather (g.g.f.) established a trust fund to be used in order to help a later generation of the family obtain a university education. The ultimat

Chi square distribution, Chi Square Distribution If the difference betw...

Chi Square Distribution If the difference between actual and the expected frequencies is zero, the sampling distribution of the chi square statistic c 2  will be identical to a

Finance charges on credit card, Jack needs to borrow $1,000 for the next ye...

Jack needs to borrow $1,000 for the next year. Bank South will give him the loan at 9 percent. Suncoast bank will give him the loan at 7 percent with a $50 loan origination fee. Fi

Dfine focus on cash flows in place of profits, Why do we focus on cash flow...

Why do we focus on cash flows in place of profits when evaluating proposed capital budgeting projects? We focus on cash flows in place of profits while evaluating proposed capita

Explain the concept of the world beta of a security, Explain the concept of...

Explain the concept of the world beta of a security. Answer:  The world beta calculates the sensitivity of returns to a security to returns to the world market portfolio. It is

Forms of liquidity, Forms of Liquidity: Definition: Liquidity defines ...

Forms of Liquidity: Definition: Liquidity defines to how quickly and cheaply an asset will be converted into cash. Money (in the form of cash) is the most liquid asset. Assets

Find capital allowances and associated tax benefits, Q. Find Capital allowa...

Q. Find Capital allowances and associated tax benefits? It is suitable to use the after-tax cost of borrowing as the discount rate since Doe Ltd is clearly in a tax-paying situ

Fiancial management, Ashok is to receive an amount of Rs. 15,00,000 from hi...

Ashok is to receive an amount of Rs. 15,00,000 from his relative after 3 years. He wants to buy a house for which he wants the money to be paid now. His relative had al

Modigliani-miller irrelevancy theorem for capital structure, QUESTION i...

QUESTION i) Discuss the Modigliani-Miller irrelevancy theorem for corporate capital structure. What assumptions underline the theorem? ii) What are the implications when the

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd