Preference shares are shares that are preferred over common or equity shares in payment of surplus or dividend i.e preference shareholders are the first to get dividends in case the company decides to pay out dividends. Another word you can say that Preference shares are like senior citizens of a rustic who commonly get preference at nearly everyplace. Just like them, in an investment environment, the company issuing preference shares is required to pay a dividend to them before they offer even a penny to equity shareholders.

For example, if the company ABC declares extra dividend common shareholders are eligible to receive such dividends. Whereas, preference shareholders are entitled to fixed dividends.

Redemption of preferred stock means that returning the preference share capital to the preference shareholders either at a set date or when a particular period of time throughout the lifetime of the company provided company must comply with certain conditions. Preferred shareholders have a prior claim on a company's assets if it is liquidated, though they remain subordinate to bondholders.we pay the money to the shareholders within one second. Management makes the resources for repayment to preference shareholders.

It may be the reserve of old profits of a company or company that may issue new equity shares or taken of a new loan or selling his assets for repayment the preference shareholders.

on the other hand, Equity Shares are the shares that carry voting rights and the rate of dividend also fluctuates every year as it depends on the amount of profit available to the company. Whatever be the source of funds for redemption, the original paid up capital of the company must not be reduced by a single rupee. Redemption should not affect adversely the interests of the creditors.

Types of preference shares:
1.Participating Preference Shares
2.Non-Participating Preference Shares
3.Convertible Preference Shares
4.Non-Convertible Preference Shares
5.Cumulative Preference Shares
6.Non-Cumulative Preference Shares

Now, if anyone wants to invest his money in equity shares and preference shares you can do it very easily. For this you, first you should gain complete knowledge about the stock market. Otherwise, there are a lot of chances that Similarly, another point of relevance is you must try to go for long-term investment; it will give you good returns for longer periods.

Author's Bio: 

I Naveen jhosi Market researcher highlighting the topic of " What do you mean by preference share?" Also, we provide Stock Tips and Free stock Tips.