Share Market Terms: While investing in the stock market, most investors focus only on returns, but to take the right decision, it is very important to understand what kind of stock you are investing in. Especially it is important for every investor to know the difference between equity shares and preference shares. Both give stake in the company, but their rights, risks and profit patterns are different. If you invest without understanding, your financial goals may be affected. Therefore, it is important to have complete information about both of these before investing.
Equity shares, also known as ordinary or common shares, give actual ownership rights in a company. When an investor buys equity shares, he becomes a partial owner of the company. He gets the right to vote in the general meetings of the company and also gets the opportunity to participate in major decisions. Equity shareholders get dividends when the company makes profits, but it is not fixed.
Higher return potential in equity
Dividend depends on the performance of the company and the decision of the board. Equity investors get a share in the profit that remains after paying all the expenses and liabilities of the company. This is why the return potential in equity is higher, but the risk is also higher.
What is preference share?
At the same time, preference shares give priority rights to investors. This means that when the company distributes dividends, preference shareholders are paid first. Moreover, if the company is wound up and its assets are sold, they still get paid first from the equity investors. Usually, the dividend rate on preference shares is fixed, which provides relatively stable income to investors. However, these shareholders do not get voting rights under normal circumstances.
The main difference between the two is rights and risks. Equity investors take more risk but can earn better returns in the long run. Preference shares are considered relatively safe and pay fixed dividends, but have limited growth potential.
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Which is better for investment?
So, if an investor wants to make big money in the long term and market fluctuations If you can bear the investment, then equity shares may be a better option. At the same time, preference shares may prove to be suitable for investors who prefer stable income and low risk. The right choice depends on the financial goals and risk appetite of the investor.
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