You are on page 1of 5

Meaning: Equity shares are those shares which are ordinary in the course of company's business.

They are also called as ordinary shares. These share holders do not enjoy preference regarding payment of dividend and repayment of capital. Equity shareholders are paid dividend out of the profits made by a company. Higher the profits, higher will be the dividend and lower the profits, lower will be the dividend. Features of Equity Shares: (1) Owned capital: Equity share capital is owned capital because it is the money of the shareholders who are actually the owners of the company. (2)Fixed value or nominal value: Every share has fixed value or a nominal value. For example, the price of a share is Rs. 10/- which indicates a fixed value or a nominal value. (3) Distinctive number: Every share is given a distinct number just like a roll number for the purpose of identification. (4) Attached rights: A share gives its owner the right to receive dividend, the right to vote, the right to attend meetings, the right to inspect the books of accounts. (5) Return on shares: Every shareholder is entitled to a return on shares which is known as dividend. Dividend depends on the profits made by a company. Higher the profits, higher will be the dividend and vice versa. (6) Transfer of shares: Equity shares are easily transferable, that is if a person buys shares of a particular company and he does not want them, he can sell them to any one, thereby transferring the shares in the name of that person. (7) Benefit of right issue: When a company makes fresh issue of shares, the equity shareholders are given certain rights in the company. The company has to offer the new shares first to the equity shareholders in the proportion to their existing share holding. In case they do not take up the shares offered to them, the same can be issue to others. Thus, equity shareholders get the benefits of the right issue. (8) Benefit of Bonus shares: Joint stock companies which make huge profits, issue bonus shares to their ordinary shareholders out of the accumulated profits. These shares are issued free of cost in proportion to the number of existing equity share holding. In case they do not take up the shares offered to them, the same can be issued to others. Thus, equity shareholders get the benefits of the right issue. (9) Irredeemable: Equity shares are always irredeemable. This means equity capital is not returnable during the life time of a company. (10)Capital appreciation: The nominal or par value of equity shares is fixed but the market value

fluctuates. The market value mainly depends upon profitability and prosperity of the company. High rate of dividend is paid with high rate of profit, the shareholders capital is appreciated through an appreciation in the market value of shares. (i.e. higher the rate of dividend, higher the market value of the shares. Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a company bankruptcy, preferred stock shareholders have a right to be paid company assets first. Preference shares typically pay a fixed dividend, whereas common stocks do not. And unlike common shareholders, preference share shareholders usually do not have voting rights. Also referred to as preferred stock Bonds Debt markets are often just called "bond markets." When you buy a bond, you're lending money to an organization such as a corporation or a government. The bond is a written promise from the institution borrowing the money to repay the loan on a certain date, called the maturity date. Usually, a bond also includes a promise to pay interest in regular installments -- in most cases, every six months or once a year. Notes Notes and bonds are pretty much two flavors of the same thing. Both promise to repay borrowed money, and both will usually pay interest. The distinction is that a note has a shorter maturity than a bond. How much shorter depends on the issuer. For municipal securities -- those issued by cities and states -- "notes" are generally defined as those that mature in a year or less. The U.S. Treasury defines a Treasury note as a security with a maturity of two to 10 years; anything longer than that is a Treasury bond, and anything shorter is a Treasury bill, or "T-bill." Corporate notes may have maturities up to 10 or 12 years, but they're categorized into short-term notes, with maturities up to five years, and long-term notes, with maturities longer than five years. Debentures So now you've got a bond or note that says you're going to get money from the issuer. Perhaps you're wondering where the money will come from. Good question. Sometimes, the bonds are "revenue bonds," meaning the money will come out of revenue generated by the very project the bonds paid for. With "asset-backed" securities, the money might come from payments on consumer loans. But in many cases, debt securities aren't actually backed by anything except the issuer's promise to pay. They are unsecured debt, meaning there's no collateral behind them. Unsecured bonds and notes are called "debentures." Debentures are classified into three classes: (a) Debentures payable to a registered holder, and debentures payable to a bearer. (b) Secured and unsecured debentures. (c) Redeemable and perpetual debentures.

1. Registered debentures and bearer debentures:


Registered debenture is one which is registered in the name of a holder in the books of the company. It is transferable in the same way as a share. These debentures are not negotiable instruments. Interest on such a debenture is payable to the registered holder or the order of the registered holder. A company may issue debentures payable to the bearer. These are negotiable instruments and the title to them is, therefore, transferable by mere delivery of the debenture to the transferee. In case of bearer debentures, the company keeps no register of debenture holders in respect of them, but if such debentures are secured they must be entered in respect of them, but if such debentures are secured they must be entered in the register of charges. The coupon is attached to the bearer debenture for payment of interest and must be presented for payment to the companys bankers when the date of payment arrives. 2. Secured and unsecured debentures: Debentures issued by a company may be secured or unsecured. Debentures which do not carry any charge on the assets of the company are unsecured or naked debentures. In such a case the debenture-holder is an ordinary unsecured creditor of the company. When some assets or property of the company are charged in favor of the debenture-holder, the debentures are deemed to be secure. The charges which a company may create on its assets may be: i) By way of a specific charge or mortgage on particular property of the company; ii) By way of floating charge; iii) By both a specific and a floating charge.

3. Redeemable and perpetual debentures:


Debentures issued by the company are generally redeemable. A redeemable debenture is one under which the principal money is paid-off to the debenture-holder on the expiry of the fixed term. The company may redeem a certain number of debentures each year or option may be given to the company to redeem all of them by a specified date. Redeemed debentures can be re-issued by the company either by re-issuing the same debentures or by issuing the other debentures in their place. Perpetual debentures are also known are irredeemable debentures. Such debentures are payable only in the event of a winding up or on some serious default by the company or payable at a remote period- such as hundred years after issue. If debentures are issued as irredeemable or perpetual, there would be no time within which the company would be bound to pay them. This does not mean that the company can never pay them off even if it wishes to do so. It only means that the creditors cannot at any time compel the company to redeem them. A perpetual mortgage in the nature of a debenture issued by a company is valid under section 120 of the companies act;

through it will be invalid under transfer of property act.

Convertible debentures:
In the case of these debentures an option is given to the debenture-holders to convert them into preference or equity shares at a stated rate of exchange after a certain period. Section 81(3) permits the issue of this type of debentures. This section provides for the issue of share to debenture-holders and creditors in exchange for the amount due to them where the terms of the issue of debentures or loans provide for such exchange and such terms are approved both by the special resolution of the company and by the central government. Commercial Paper Companies issue bonds and notes to pay for specific projects, such as big capital investments or debt restructurings. But sometimes companies need a short-term infusion of cash to buy inventory or cover regular fluctuations in cash flow, and they'd prefer not to have to jump through the hoops that banks and bond-market regulations require. That's where "commercial paper" comes in. These are extremely short-term notes with maturities of nine months or less -- often much less. If your investments include "money market" funds, you may well have some money tied up in commercial paper. A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years. A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty. For example, let's say that you purchase a Rs10,000 CD with an interest rate of 5% compounded annually and a term of one year. At year's end, the CD will have grown to $10,500 (Rs10,000 * 1.05). CDs of less than Rs 100,000 are called "small CDs"; CDs for more than $100,000 are called "large CDs" or "jumbo CDs". Almost all large CDs, as well as some small CDs, are negotiable. Treasury bills (T-bills) offer short-term investment opportunities, generally up to one year. They are thus useful in managing short-term liquidity. At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments. Amount Treasury bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000. Treasury bills are issued at a discount and are redeemed at par.

You might also like