OTHER SECURITIES
The equity shares or common
stock are also called as ‘ownership securities’. Investment in equity shares
entitle their owners not only to get the right of sharing divisible profit in a
company but also to exercise control over management fundamentally. Now-a-days
different varity of ownership securities are being traded.
Indirect equity refers to the
special instruments of institutional investors who make investments on behalf
of their small investors. The institutional investors represent the investing
public who can’t exercise the professional expertise in the investment decision
what the former can do. The special instruments here refer to units of the
Trusts/Mutual Funds, from which the investor gets dividend after meeting all
expenses of the Assent management. The institutions refer to units of UTI and
the like. The units can be bought and sold only at this institution,
characteristically, at a price determined by the valuation of assets from time
to time. However, there is where the sale and purchase and the price of
units/instruments can be affected through secondary markets where they traded.
Preference shares:
It is a hybrid instrument as it has the characteristics of both
debt and equity. It has the preference over dividend from taxed income after
interest, and the redemption of capital after specified period or at the time
of liquidation. These are less risky to hold, compared to equities, but more
risky to debentures. The redeemable preference shares, cumulative preference
shares participating preference shares, etc. are different types of preference
shares based upon its terms and characteristics. For the preference
shareholders, the fixed rate of dividend, preference to capital and dividend at
the time of liquidation, accumulation of dividend at the time of insufficient
profit or loss making position, etc. are the advantages of preference shares; however,
very lesser fixed rate of dividend compared to equity shares and having no
right of control over management, etc. are its drawbacks.
A Company issuing preference
share may benefit from paying the fixed rate of dividend liability and avoiding
the problem of dilution of control, whereas the higher cost of raising capital,
accumulation of dividend to the future and non-availability of tax-shield
towards profit are some of the limiting factors to consider.