Perpetual preference shares: What they are exactly
What's the story
Indian perpetual preference shares are becoming a popular investment option, thanks to their unique features. These shares provide a steady income stream and don't have a maturity date, which makes them different from regular shares and bonds. Investors looking for income without the risk of losing capital may find these appealing. Here's a look at the key aspects of Indian perpetual preference shares and what you should know before investing.
#1
Understanding Perpetual Preference Shares
Perpetual preference shares are hybrid instruments that give dividends to investors without a fixed redemption date. Unlike regular shares, they come with a fixed dividend payout, which is paid before the common shareholders. This makes them an attractive option for those looking for consistent returns. However, since they are perpetual, investors must be aware that the principal amount is not returned unless the issuing company decides to buy them back.
#2
Benefits of investing in perpetual preference shares
One of the biggest advantages of investing in perpetual preference shares is the regular income they provide through dividends. These dividends are usually higher than those of ordinary shares or fixed deposits, making them an attractive option for income-focused investors. Plus, these shares also offer priority over common equity during liquidation, providing an additional layer of security.
#3
Risks associated with perpetual preference shares
While perpetual preference shares offer several benefits, they also come with risks. The biggest risk is that dividends may be suspended if the company faces financial difficulties or chooses to conserve cash. Also, since these instruments are traded on exchanges, their market value can fluctuate based on interest rates and investor sentiment.
Tip 1
Factors to consider before investing
Before investing in Indian perpetual preference shares, it is important to assess the issuing company's financial health and credit rating. A strong balance sheet and consistent earnings can make these investments less risky. Also, keep an eye on interest rate trends as they can affect dividend yields and market prices of these instruments.