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

base-case NPV, Ask question #MiniA project under consideration costs $750,...

Ask question #MiniA project under consideration costs $750,000, has a five-year life, and has no salvage value. Depreciation is straight-line to zero. The required return is 17 per

Expalin the term mutual funds, Mutual funds Mutual funds pool resources...

Mutual funds Mutual funds pool resources from a lot of individuals and companies and invest these resources in diversified portfolios of bonds, stocks and money market instrume

Market efficiency, Market Efficiency Though there are various markets p...

Market Efficiency Though there are various markets present in the financial system, the ease with which the transfer of funds take place depends on the level of efficiency pres

Essentials of rating service, Critical investment decisions may be ta...

Critical investment decisions may be taken based on the ratings offered by the credit rating agency. In order to ensure that the rating leads to good investment d

Optimal cash model, Optimal Cash Model: Cash Management is a bigger as...

Optimal Cash Model: Cash Management is a bigger aspect that involves range of functions that assist individuals and business to process their payments and receipts in an organ

What are classes of institutions that issue bonds in the usa, What are the ...

What are the main classes of institutions that issue bonds in the USA? There are three major classes of institutions which issue bonds in the USA: national governments, local g

Audit systems, Enron did not manages its trade account receivable in signif...

Enron did not manages its trade account receivable in significant manner that made huge financial loss for the organizations. Hence, the management faced biggest fraud due to the f

State the different accounting policies, State the different accounting pol...

State the different accounting policies Different accounting policies which can be adopted will have an influence on the ratios calculated and hence make comparisons more diffi

Budget classification on the basis of flexibility, ON THE BASIS OF FLEXIBIL...

ON THE BASIS OF FLEXIBILITY • Fixed budget: this is designed to stay unchanged irrespective of the volume of output or turnover attained.  The budget remains unchanged over

Advantages of private mutual funds, Advantages of Private Mutual Funds ...

Advantages of Private Mutual Funds It is felt that the entry of private Mutual Funds would encourage competitiveness in the financial sector and promote the existing investment

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