Securities are of great interest among potential investors. After all, buying shares, bonds or other types of them is a more profitable investment than, for example, a bank deposit that saves money, but does not always cover Russian inflation.
Types of securities
This is the right question to start with. To figure out which securities are equity, you need to know their existing types:
- Promotions.
- Bonds.
- Promissory notes.
- Checks.
- Bank certificates.
- Bills of lading.
- Embedded.
- Investment units.
One name is not enough to understand the essence. Therefore, each type of securities needs to be discussed in more detail.
Promotions
Allow the owner to claim a portion of the corporation's profits. All shareholders are periodically paid dividends. Also, the owner of the shares can participate in the management and receive part of the property in the event of liquidationenterprises. There are simple and privileged. All shares issued by a company constitute its capital. All holders of these securities are considered co-owners.
Bonds
To become an owner, you need to deposit a certain amount, which can be lower, equal or higher than the nominal. During the holding period, the bondholder receives a regular income. At maturity, it is returned face value in exchange for previously purchased securities.
Promissory Notes
Confirm the obligation of the debtor to repay the debt in a timely manner. In this case, the bill is of two types:
- Simple. Confirms the obligation of the debtor to return the specified amount to the owner of the bill.
- Transferable. Confirms the obligation of the debtor to return the specified amount. But not to the owner of the bill, but to the person indicated in the security.
Checks
They are written instructions for a banking organization obliging them to transfer the required amount of money to a specified person. The order must be executed within the life of the security.
Bank certificates
In other words, this is a certificate confirming a cash deposit in a bank. On the basis of this security, the credit organization undertakes to return to the owner the amount of the deposit and accrued interest. Certificates of deposit are issued to legal entities, savings certificates to individuals.
Bills of lading
Security for shipping. Gives the right to receive it.
Mortgages
The owner of such a valuablepaper can count on the timely receipt of a monetary obligation or property. It is indicated in the mortgage as collateral.
Investment units
The owner of such a security is endowed with the right of ownership of the property located in the mutual fund.
So, having de alt with the main types, we can highlight some other issues.
An equity security is…?
This is one of the financial instruments. The owner of an equity paper acquires the right to a part of the property of the company that issued it. From the types listed above, we can conclude that shares are equity securities. They are often confused with debt due to similar names.
In order not to be confused, the novice investor must understand the terms. So how do equity securities differ from debt securities? The difference is quite simple and easy to remember.
Debt is the borrowed capital of the company. Equity - on the contrary, her own. Companies use bonds to raise additional financing. In other words, they borrow. Is a bond an equity security? No. Now you know why.
A share, on the other hand, is an equity security. It allows you to kind of divide the company into small parts and sell it to different owners. They are called shareholders. Thanks to their funds, the company forms fixed capital. Investor money allows the business to grow. As a thank you, the company pays dividends to its shareholders and may even allow them to be carried out.management functions.
An investment share is an equity security. We'll talk about it below.
Common stocks
Allow owners to claim a stake in the company. They also have the right to vote at meetings. The shareholder has the right to receive information about the activities of the enterprise, etc.
The greater the share of the investor in the authorized capital, the more rights he has.
Preferred shares
This equity security also allows you to claim a share of the property. However, preferred shareholders do not get access to management functions in the corporation. However, in the event of liquidation, they claim to receive their share in the first place, and also have advantages in the distribution of dividends. What does this mean in practice? If the owners of ordinary shares do not receive profit from unprofitable activities, then preferred holders can count on dividends specified in the charter. However, this is not all there is to know.
There are several types of preferred shares.
- Cumulative. Dividends are accrued to the investor and may be paid over subsequent periods.
- Non-cumulative. If no payment is declared for any reporting period, no dividends are paid.
- Equity shares. Gives you the opportunity to receive higher dividends. This occurs in a situation where the payment on ordinary shares exceeded the amount declared in advance.
- Convertible. The owner of this type of preferred shares can exchange them for common ones. The rate is discussed in advance.
Which stocks to choose?
Answering this question, investors evaluate their willingness to take risks.
For example, preferred shares allow you to feel relatively calm. They guarantee the payment of dividends, as well as benefits in the event of liquidation of the company.
When buying common stocks, the investor is exposed to more risk. He is not guaranteed a stable payment of dividends and the receipt of part of the property in the event of liquidation. However, the profit will be higher than that of the preferred holder if the company achieves good financial performance.
Investment share
Is an equity security on a par with stocks. Special funds raise funds and then invest them in various instruments. It can be real estate, other securities and some alternative ways to increase financial capital.
Then, the value of the fund's assets is estimated and divided into shares. By purchasing an investment share, you can receive part of the investment portfolio in exchange.
To manage the fund, hire a management company. It is in her jurisdiction that there are actions related to the issuance, purchase, sale of investment shares. Their owners have the same rights. Investment units are usually issued electronically. In the same way, the register of shareholders is created and maintained.
Features
The securities market in Russia is attracting more and more investors, increasing volumes. Herewhy for some this area is especially attractive. When it comes to equity securities, investors often see them as speculative in the short to medium term.
They are freely circulating in the market. But there are some exceptions. For example, nominal shares. They are recorded in a special register, so transactions with them are made in a slightly different way.
However, there are many instruments on the stock exchange that allow an investor to make various transactions with securities. Most of them are performed remotely.
