Question

Read the following case and answer the question given below :
After reading an advertisement in the newspaper about an upcoming public issue of preference shares of a pharmaceutical company, Deepanshu made up his mind to invest money in that issue. Later on, he discussed his plan with his friend Chitkarsh, who is a stockbroker. Chitkarsh, on the contrary, advised him to invest in equity instead.
Give any three reasons to invest in equity and not in preference shares.

Answer 1

Equity shares are often considered a better investment option than preference shares for the following reasons:
1. Higher Returns: Equity shares have the potential to generate higher returns over the long term in the form of dividends and capital appreciation. Preference shares provide fixed returns, which are generally lower.
2. Ownership and Voting Rights: Equity shareholders are part-owners of the company and enjoy voting rights, enabling them to have a say in important company decisions. Preference shareholders do not have these rights.
3. Growth Opportunities: Equity investments offer better growth opportunities as the company’s profits increase, which is reflected in the share price. Investing in equity is suitable for investors willing to take risks and aiming for higher returns over a longer period.