Preference shares
Shares with a superior economic right to equity — first preference for dividends and return of capital, a fixed rate of dividend, and redemption within a period not exceeding 20 years.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- ADR, GDR and IDRDepository receipts represent shares of a company in one country but trade on an exchange in another — American inside the US, Global outside it, Indian for foreign shares listed here.
- Clearing corporationThe entity that steps between every buyer and seller in the derivatives segment by novation, becoming the counterparty to both sides and guaranteeing that the trade settles.
- Convertible debenturesDebentures that turn into equity shares on terms fixed at issue — the investor draws a coupon until conversion, and the company settles the debt in shares instead of cash.
- Credit riskThe risk that a borrower fails to meet its obligations on a debt instrument — the risk credit rating agencies exist to grade, and the one that triggers a segregated portfolio in a mutual fund.
- CustodianThe SEBI-registered entity that holds a fund's securities in accounts of its own and settles its trades, so the assets sit somewhere other than with the manager who decides what to buy.
- Depository participantThe SEBI-registered agent through whom an investor reaches a depository — NSDL and CDSL cannot open investor accounts themselves, so every demat account is opened and operated through a DP.
Where this is taught
- Series IX · Chapter 1: Introduction to the Capital Marketintroduced here
- Series II-B · Chapter 1: Introduction to Securitiesintroduced here
- Series III-A · Chapter 1: Introduction to the Financial Systemintroduced here
Related terms
- Early-stage capitalThe third round of a young company's life — money to set up initial operations and basic production once it has customers, raised in Pre-Series A, Series A or Series B.
- Down roundA financing round priced below the valuation of the previous round — the event that triggers anti-dilution protection and re-prices every earlier investor's conversion.
- Weighted average anti-dilutionThe gentler of the two anti-dilution methods: the conversion price is reset to the average price of all capital raised to date, not to the lowest price the company has ever issued at.
- Non-participating liquidation preferenceA liquidation preference where the investor takes either the guaranteed multiple of its investment or its pro-rata share of the proceeds on conversion — whichever is larger, but never both.
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