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

What is the de-merger, What is the De-merger This is splitting up of a ...

What is the De-merger This is splitting up of a group into two or more separate bodies. The group is split into separate entities, but the shareholders remain the same. It is o

Explain how a country can run an overall balance of payments, Explain how a...

Explain how a country can run an overall balance of payments deficit or surplus. Answer:  A country can run a whole BOP (balance of payments) deficit or surplus by engaging in th

Regional banks, Regional Banks Large banks like First Norwest, Chicago,...

Regional Banks Large banks like First Norwest, Chicago, Mellon and Crocker function regionally at the national level in a fashion same to money center banks. Regional banks ser

Operating cycle, discuss the applicability of operating cycle to poultry bu...

discuss the applicability of operating cycle to poultry business(consider broilers)

Describe the internal control procedures, Board should encourage a strong c...

Board should encourage a strong control culture. Manager's bonus must not only be linked to company profits but also linked to internal control procedures being adhered to. There m

Cost of retained earnings , Cost of Retained earnings (K ) Retained ea...

Cost of Retained earnings (K ) Retained earnings are that portion of EPS that is retained by the firm.  This may be measured as the rate of return which the existing share hol

Explain risk adjusted discount rate method, Q. Explain Risk Adjusted Discou...

Q. Explain Risk Adjusted Discount Rate Method? In the risk adjusted discount rate method the future cash flow from capital projects are discount at the hazard adjusted discount

Purpose of Issue-CDs, Purpose of Issue CDs benefit both issuers and inve...

Purpose of Issue CDs benefit both issuers and investors. From the issuers (banks) point of view, CDs are issued foreseeing the advantages over conventional deposits. The motives

Stream of expected returns, Stream of Expected Returns Investment retur...

Stream of Expected Returns Investment returns can take many forms. An investor must consider all these forms to evaluate an investment option accurately. A brief description of

Explain the various key determinants of initial project cost, Question 1 Th...

Question 1 There are several elements which you can take into consideration, while budgeting a project. Describe these elements Question 2 Explain the different methods/source

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