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

Define main trends which prevailed in international business, Discuss the t...

Discuss the three main trends which have prevailed in international business throughout the last two decades. The 1980s brought a fast integration of financial markets and inter

Yield spread measures for floating-rate securities, In a floating rat...

In a floating rate security, the coupon rate changes periodically as per the reference rate. The yield to maturity of floating rate securities cannot be calculated as

Determine the basic requirements for a successful jit, What are the basic r...

What are the basic requirements for a successful JIT inventory control system? For a JIT system to be booming the supplier must be willing and capable to deliver materials instan

Define the straight fixed-rate bond, Define the Straight fixed-rate bond ...

Define the Straight fixed-rate bond Straight fixed-rate bond issues comprise a designated maturity date at which the principal of the bond issue is guaranteed to be repaid.  Th

Show the limitations of participation, Limitations of participation: 1...

Limitations of participation: 1. Technology and organization today are so complex that specialized work roles are required making it difficult for people to participate succes

Introduction of financial management, Introduction of Financial Management ...

Introduction of Financial Management Accounting has evolved and emerged within response to the social and economic needs of the society. The procedure of book keeping (mainten

Marketing, How to use integrated promotional mix to achieve marketing objec...

How to use integrated promotional mix to achieve marketing objectives

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

Matching or accrual, Matching or Accrual   The accrual concept makes...

Matching or Accrual   The accrual concept makes a distinction among the receipt of cash and the right to receive it, and the payment of cash and legal obligation to pay it.

Passive management, In the efficient markets, whether it is sec...

In the efficient markets, whether it is security, equity or fixed-income markets it is believed that the investors use some type of passive strategy in

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