When you are going to step in the stock market to invest, it is critical to understand the diverse types of shares available to investors. There are manifold kinds of shares, each with its own distinct features and benefits.
If you are a newbie then don’t worry as this post is going to tell you about the kinds of different shares. It would be like a quick guide for investors like you. So, make sure your concentration is here for the next few minutes to make the most of this post.
Ordinary shares
Ordinary shares are the most general type of shares and are even known as common shares. These shares indicate ownership in a company and enable the shareholder to vote on critical matters, such as the election of board members and even company policies. Ordinary shareholders also have the power to receive dividends that are paid out of the profits of the company.
Ordinary shares are believed to be a high-risk investment, as the value of the shares may fluctuate massively based on market conditions and even the performance of the company. In addition, ordinary types of shareholders are the last in line to get payment if a company goes bankrupt and even its assets are liquidated.
Preference shares
Preference shares are a kind of share that offer investors certain advantages over ordinary shareholders. These advantages can encompass priority in receiving dividends and even preference in the time of liquidation of the company’s assets. Preference shareholders can also have additional voting rights, like the right to vote on the appointment of any director.
Preference shares are less dangerous than ordinary shares because they offer a definite dividend payment, that is usually a fixed percentage of the share price. However, preference shareholders do not really share in the company’s profits in the same way that that of ordinary shareholders do. In addition, preference shares are not really typically traded as frequently as ordinary shares and that can make them more challenging to sell.
Redeemable shares
These shares can be bought back by the company at a predetermined sort of price. These shares are most of the times used by companies to raise capital without diluting their overall ownership structure. Redeemable shares can even be advantageous for investors because they provide a level of liquidity that is not there with other types of shares. However, being an investor, you should be aware that redeemable shares can be subject to specific types of restrictions, like a limit on how many shares can get redeemed at once.
Cumulative preference shares
These are the preference shares that provide even more advantages to investors. These shares promise that any missed dividend payments are going to be paid in the future that can make them more fascinating to risk-averse investors.
Moreover, these cumulative preference shares are somewhat similar to ordinary shares in that they do not really possess a fixed dividend payment. Instead, the dividend payment is grounded on the company’s profits and can even fluctuate from year to year. However, cumulative preference shareholders have importance over other shareholders when talking about receiving dividends and getting paid at the time of liquidation.
Conclusion
So, since you know some of the share types in the share market, make sure that you use this knowledge to invest well.
Also Read: Online Stock Trading Guide
