From the facts, it show that stocks and bonds are popular forms of investment in the stock market today. Despite being so popular, choosing to invest in stocks or bonds has always been a concern for many new investors in the market.
To choose the right form, investors need to understand what bonds and stocks are? Are there any disadvantages to stocks or bonds in the process of raising investment capital? Then, find out through the following article.
What is preferred stock?
– Issued by a joint-stock company
– Is a type of security that has both common stock and bond-like characteristics.
– As a certificate of ownership in a company; at the same time allows the holder to enjoy some preferential rights compared to common shareholders.
– The holder of preferred stock called the preferred shareholder of the company. Shareholders holding preferred shares are mostly investors who contribute capital to the issuing company to receive dividends from shares.
– Enterprises can refuse to issue preferred shares
– Preference shares will affect by investors’ interest rates; When interest rates rise, the value of preferred stock decreases, and vice versa.
What are bonds?
– The issuer can be a government or a business
– Is debt security. The bondholder is the company’s creditor
– Bonds do not increase the capital of company owners
– Is a certificate of obligation by the issuer to pay the bondholder for a specified amount (the face value of the bond), for a specified time and with a specified return
– Bond’s income is interest, which is a fixed income regardless of the company’s business results.
With the above characteristics, from the perspective of investors in the stock market, we see that bonds are more stable and contain less risk than stocks. Therefore, bonds are the preferred securities by investors.
Difference between preferred stock and bond
Preferred shares
– Equity securities.
– Shareholders have the right to vote if they are voting preference shares.
– The company does not go bankrupt if it fails to pay dividends.
– Shareholders have the right to participate in the company’s activities.
– Only joint-stock companies can issue.
– Paying dividends before common shares.
– Stock buyers are shareholders.
– Enjoy shareholder benefits.
– Not convertible into bonds.
– Higher risk than bonds.
– The initial investment cannot be returned.
Bonds
– Debt securities
– Bondholders must not vote
– The company goes bankrupt if it cannot pay its debts and interests
– Interest expense from bonds payable to bondholders is a pre-tax expense, deductible when calculating tax
Payback and have a definite term (short or long term)
– When the company goes bankrupt or dissolves, bonds are preferred to be paid before stocks
Disadvantages of raising capital
Bonds and shares are both proof of right as the owner’s legitimate interest in the assets or capital portion of the issuer. They are presented in the form of certificates, journal entries, or electronic data. Besides, it can be used to exchange, buy, sell, mortgage, mortgage, and inherit. At the same time, they all receive interest, dividends, and dividends.
This is a means of attracting the investment capital of the issuer in the stock market. When investors raise capital by issuing preferred shares, the yield on preferred stock is higher than the yield on bonds. Preference share dividends are not deducted from taxable income, making the cost of using preferred stock greater than the cost of using bonds.
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Related question
Shareholders who hold these types of shares are considered preferred shareholders, have more advantages in terms of dividends, have voting rights, or are priority subjects over common shares.
Owners of preference shares are considered preferred shareholders of the company and have the right to enjoy a higher dividend rate than ordinary shares.
– Preference shares are entitled to receive back their contributed capital if unfortunately the company goes bankrupt or dissolves.
– Helps provide higher voting rights than common stock
– Ability to convert into common shares. As a result, investors can freely transfer and profit when the share price is favorable to investors.
What is the role of bonds in the current economic market?
– Bonds are considered a quick and effective source of capital mobilization for the economy in general.
– Help the capital market to be more complete & diversified
– Reduce concentration on bank capital
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