What Are Preference Shares? Preferred stocks or shares are other names for preference shares. These are some particular types of shares as preference shareholder gets the priority of paying dividends. Also, when sharing profit preference, shareholders get priority over other kinds of shareholders. Perhaps at the time of the company’s liquidation, rewards are issued for preference shareholders first, and before common shareholders, preference shareholders have priority over companies’ assets. Preference shareholders get the fixed rate of dividend. However, they don’t receive any voting rights advantage.
Those investors who stayed in the stock market for a long time must go for preference shares. Because as compared to ordinary shares, preference shareholders get higher returns.
It has been observed that many companies are coming out of the different types of preference shares. In this manner, they can cover both equity and debt shares. These shares are also categorised under hybrid financing instruments.
Globally, the market runs borne by over the last few years. That’s why numerous investors are looking towards preference shares as they give higher returns than ordinary ones.
But while investing in any preference or ordinary shares, one needs to understand how the share market works and the right ways of investing in the share market. Before investing, one needs to make a proper plan and strategy to face a considerable loss. Because as we know, the stock market is uncertain, so never invest in it if you don’t see how it works. You can join the Best Stock Market Institute in Delhi to gain stock market knowledge.
There are many features of preference shares. These features prove advantageous to the investors. Only because of this reason preference share is considered the most common. Even during market recessions, preference shares manage to yield good returns. Some of the best features of the stock market are:
Right to dividends
This is the most attractive feature of preference shares. Preference shareholders have the first right to get fixed dividends and earnings remaining after profit distribution to equity shareholders.
Although preference shareholders cannot vote on all the decisions in a company, they can vote on matters that affect the rights of preference shareholders.
Preference shares can be of many types. Now that we know what preference shares are, we shall be able to understand their types properly. The most common types of preference shares found in India are given below.
- Redeemable preference Shares – The company can repurchase shares at a fixed date or after serving proper notice before the shareholders.
- Irredeemable preference Shares: The company can only redeem shares when winding up or liquidating.
- Convertible preference Shares – Such shares can be converted into equity shares after the expiry of a particular period, as stated in the company’s memorandum of association.
- Non-convertible preference Shares – Not possible to convert into the equity shares in such kind of shares
- Cumulative preference shares – Dividends not paid in one year are carried on to be paid to the shareholder in the next year along with the following year’s dividend.
- Non-cumulative preference Shares – However for the following year carry forward of dividend is not possible. Dividends get lapsed if it’s not paid for the duration of one year
- Participating preference Shares: Shareholders have the right to receive a stake in the remaining profits after paying a dividend to equity shareholders, apart from the fixed dividend entitled to them.
- Non-participating preference Shares – The fixed dividend is the only right to be received by shareholders. On the companies, excess profit non-participating shareholders don’t have the right to get claims
Investors who wish to have continuous fixed returns over a long period should opt for preference shares. Their advantages attract a lot of long-term investors. Preference shares also have a wide range of different features based on the type of preference shares you choose. By which individual can make the most suitable investment option. For making the right decision to invest one can also enroll in Stock Market Course In Delhi