Equity Shares

The capital of a company is divided into shares.

Each share forms a unit of ownership of a company and is offered for sale so as to raise capital for the company.


The holders of shares are called shareholders.

Shares are of two types- ordinary or equity shares and preference shares


What are ordinary/equity shares?

  • They are the legal owners of the company.
  • Ordinary shares are source of permanent capital since they don’t have maturity date.
  • Shareholders are entitled to receive dividends by the company.
  • The amount or rate of dividend is not fixed. It is decided by the company’s board of directors.
  • Ordinary share is also known as a variable income security.

What are the features of equity shares?

Claim on income

Ordinary shareholders have a residual ownership claim.

Residual income is earnings available after paying expenses, interest charges, taxes, preference dividend, if any.

This residual income is either directly distributed to shareholders in the form of dividends or indirectly in the form of retained earnings which are reinvested in the business.

Retained earnings help in growth of the company, which is beneficial for the shareholders.



Claim on assets

On liquidation of the company, dues are paid to debt holders, preference shareholders and the remaining is paid to ordinary shareholders.


Right to control

Ordinary shareholders have the legal power to elect directors on board.

Board of directors approve major policies of the company and appoint managers to carry out day to day operations.

Thus, ordinary shareholders can control the management of company by choosing board of directors.


Voting rights

Ordinary shareholders have the right to vote on major decisions of the company eg. Change in memorandum of association, election of board of directors, etc.

An ordinary shareholder has votes equal to the number of shares held by him.


Limited liability

Liability of ordinary shareholders is limited to the amount of their investment in shares. In case of liquidation or any financial problem, ordinary shareholders are not liable to pay.

What are the advantages of equity shares?

Shareholders’ Point of View

  • Liquidity and easily traded in capital market
  • Higher dividends when company has increased profit
  • Voting rights to control management of the company
  • Appreciation in the value of shares when company performs well


Company’s Point of View:

  • Least repayment liability
  • Permanent source of capital
  • No obligation to pay dividend

What are the disadvantages of equity shares?

Shareholders’ Point of View:

  • Uncertainty of receiving dividend
  • Fluctuations in value of shares
  • Issue of fresh shares reduces the earnings of existing shareholders


Company’s Point of View:

  • High cost to source equity shares as compared to other sources of finance
  • Payment of dividend is not tax deductible

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Types of debentures

Debentures can be classified on the basis of:

  1. Transferability/ Registration


  • Registered Debentures- Name, address, and other holding details are registered with the issuing company.

The amount of registered debentures is payable only to those debenture holders whose name is mentioned in the register of the company.


If the debenture is transferred by the holder, it is necessary to inform the issuing company for updating its records.

  • Unregistered/ Bearer Debentures- these debentures are not recorded in a register of the company.

Bearer debentures can be transferred by mere delivery to the new holder.

The interest and principal are paid to the person who produces the coupons attached to the debenture certificate.

  1. Security


  • Secured/ Mortgage Debentures- these debentures are secured by a charge on the asset or set of assets of the company.

The holders of secured debentures can recover the principal and unpaid interest amount out of the assets mortgaged by the company.


These debentures are further classified into– first and second mortgaged debentures.


At the time of liquidation of the company, first mortgaged debentures have the first charge over the assets of the company whereas second mortgaged debentures have secondary charge.

  • Unsecured/ Simple Debentures- these debentures are not secured by any asset and are issued solely on the credibility of the company.

  1. Redemption


  • Redeemable Debentures- these debentures are issued for a fixed period. The principal amount is repaid to the holders on the specified date.

  • Non-redeemable/ Perpetual Debentures- these debentures do not have any date of redemption.


These debentures are redeemed either when the company chooses to pay back or at the time of liquidation.

The company may pay back to reduce its liability and notifies the debenture holder by issuing due notice for it.

  1. Convertibility

  • Convertible Debentures- these debentures can be converted, fully or partly, into shares after a specified period of time.


      Convertible debentures are further classified into:

  • Fully convertible debentures can be completely converted into equity shares.
  • Partly convertible debentures have two parts- Convertible part which is converted into shares as per the agreement. Non-convertible part is repaid after the expiry of the agreed period.


  • Non-convertible Debentures- these debentures do not have the feature of conversion and are repaid on maturity.


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What is a debenture?

Debenture is one of the financial securities traded in capital markets.

It is defined as a long-term promissory note for raising loan capital where the company promises to pay interest and principal as stipulated.

Who can issue debentures?

Debenture can be issued by both corporations and governments.

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An alternative form of debenture is a bond, mostly issued by public sector companies.

What are the features of debentures?

  1. Debenture is a form of loan capital for the company.

  1. The purchaser of debenture is called debenture holder. So, a debenture holder is a creditor of the company.

  1. The par value of a debenture is the face value mentioned on the debenture certificate.

  1. The interest rate on a debenture is fixed and known at the time of purchase. Interest is a percentage of this par value.

  1. The legal agreement between company and debenture holder is called indenture or debenture trust deed. It includes the specific terms of the agreement, description of debenture, rights of debentures holder, etc.

  1. Debenture can either be secured or unsecured. Secured debenture is secured by lien on the company’s specific asset. However, unsecured debenture is not protected by any security.


  1. The credit rating of debenture indicates the degree of its safety. Credit ratings are provided by Credit Rating and Information Services of India (CRISIL) and few other rating companies like CARE and ICRA in India.

  1. Companies issue debenture in different denominations. But, public sector companies issue bonds in the denomination of Rs. 1000.

  1. Debenture is issued for a specific period of time.

  1. The maturity of debenture is the time period until the company returns the par value to debenture holder and terminates the debenture. Usually, a debenture is redeemed after 7 to 10 years of payment.

What are the advantages of debentures?

  • Fixed and stable interest income.
  • Definite maturity period
  • Ease of trading and liquidity


  • Comparatively safer investment as debenture holder has specific or a floating charge on the secured asset of the company
  • Preferential right of payment at the time of liquidation of the company
  • Interest is protected as per indenture provisions and SEBI guidelines

What are the disadvantages of debentures?

  • No voting rights
  • Returns limited to the extent of interest, irrespective to higher or lower earnings of the company
  • No share in profits


  • Debenture holder is only creditor to the company, has no ownership of company
  • Interest on debentures is fully taxable

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Pension plans

While retirement may seem distant for many, retirement security is as important as any of your other financial goals.

Due to rising cost of living, inflation and increased life expectancy, financial planning is essential to live a happy and comfortable life after retirement.

Pension plans or retirement plans are one of the tools available to build a retirement corpus.


Pension plan provides regular fixed monthly pension at the end of the period for lifetime. Investment is made by paying premiums to build a corpus which is invested in various funds.

Insurance companies, Mutual fund companies and Government provide pension plans with unique benefits.


For instance, Insurance companies provide pension plans with the waiver of premium rider or partner care rider.

In the event of an unforeseen calamity like death, the future premiums will be waived off.

The Insurance company will pay the future premiums on your behalf. This will ensure that your nominee receives the same pension till the end of the period.

Do consult your financial advisor to choose the appropriate plan as per your requirements.


Types of pension plans:

Immediate Annuity

In immediate annuity, the pension begins immediately. You have to pay a lump sum amount and your pension will start instantly.

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The pension you receive will be based on the lump sum you have invested.

Deferred Annuity

In deferred annuity, pension does not commence immediately. It is ‘deferred’ up to a time, which is decided upon by you.

This implies that you have to pay the premiums till the policy term, after which you will start receiving your pension.


Premiums can be paid as single premium or as regular premium.

With cover pension plan

‘With cover’ plan provides life coverage which implies that in case of death, a lump sum amount is paid to your family.

However, the cover amount is not very high as major part of the premium is invested to build the retirement corpus.


Deferred annuity plans are available with cover.


Without cover pension plan

‘Without cover’ implies that you do not get any life cover.

In case of death, your family will receive the accumulated corpus till the date of your death.


Immediate annuity plans are available without cover.

Annuity Certain

The annuity is paid for a specific period as chosen by you.

In case of death before this period, your beneficiary would receive the annuity.

Guaranteed Period Annuity

Annuity is paid for certain periods whether or not you survive that duration.

Life Annuity

In a life annuity plan pension is paid until death.


If you choose ‘with spouse’ option, then in case of death, the pension is paid to your spouse.

National Pension Scheme (NPS)              

NPS has been introduced by the government. The amount you save in NPS will be invested in equity and debt.


You have the option of withdrawing 60% of the amount at retirement and the remaining 40% has to be used to purchase annuity.

The maturity amount is not tax free though.

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Child education plan

Whatever path your child chooses, you would always wish his or her dreams come true.


To realise your child’s aspirations, right financial planning for his or her secured future is very important.

What is a child education plan?

Child education plans are regular life insurance policies specially designed to meet your child’s financial needs.


The plan provides amount on maturity for your child’s education expenses.

In case of policy owner’s untimely demise, the child will be paid the death benefit amount and all future premiums are waived off.


The policy does not lapse, the insurance company continues to invest future premium amount on policyholder’s behalf.

On maturity of the policy, the maturity amount is paid to the child.

Do I need a child plan?

Increasing education expenses are a worry of every parent.

Higher education costs would increase drastically by the time your child grows up.


Hence, you need to start planning for your child’s education as soon as possible. An early start would give time for your money to grow.

A child education plan will provide funds for your child’s higher education and secure your child’s future in any uncertainty.

What are the features of child plan?

  • Flexible policy term of 5-25 years
  • Premium amount as per your requirements
  • Tax benefit under Section 80C


  • Partial withdrawal benefit
  • Mode of premium payment- monthly, quarterly, half-yearly or yearly
  • Loan on deposits
  • Pre-mature closure allowed

Most child plans are good; however, these are designed for longer duration. So are more beneficial if your child is less than 5 years old.

Even if you have missed investing in such plans, there are plans offered by mutual fund companies for older kids.

The funds are invested in hybrid plans like debt and equity which are a mix of G-Sec, bond and equity shares with moderate risk and good returns.

However, these plans do not provide insurance coverage.

Though, you can buy a separate plan for insurance coverage. Do contact your financial adviser for further details.

Types of plans


Tips while choosing a policy:

  • Decide the amount you want to save for your child’s education.
  • Calculate the amount considering the inflation rate.
  • Choose the premium as per your affordability.


  • You can choose a policy which gives you the flexibility to gradually increase the savings in future.
  • Opt for the payer benefit rider- your child’s education fund will be taken care in case you are unable to pay due to untimely death, critical illness or disability.

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Retirement planning tips

Start planning for retirement from the day you start earning- is certainly the best advice given, but is hardly ever followed.


Retirement is one of the most significant phases of our lives.

Sensible financial planning during your working years can help you realize the dream of a happy and comfortable retirement.


Here are few tips you can follow:

  1. Focus on starting today

If you have just realised that you need to plan for your retirement, start saving and investing as much as you can now.


Tip: When young, you can grow your money considerably with the power of compound interest.  In such investments, the interest is paid on the principal investment and the accumulated interests of previous period.

  1. Increase investment as your income grows

You should take into account the rising inflation to build your retirement corpus.

So each time, you get a raise, increase your retirement savings too.


Tip: Few plans have the option to increase the amount automatically- once half yearly or annually for an amount of your choice eg. Rs. 1000 or Rs. 2000 increase every month there on. Do consult a financial advisor for more such options.

  1. Diversify your savings

Your investment portfolio should be according to your age, risk appetite, liquidity, inflation, liabilities and goals.

Diversify your savings in various categories to optimise returns.


Tip: At the age of 50 you should revisit your retirement portfolio and check the allocation of your investments.

  1. Appropriate Health Cover

Health insurance plan by your employer will cover you only till you are employed with them.

It is always better to buy personal health insurance plan including your spouse for lifetime benefit.

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Tip: Low premium, no worry of pre-existing illness waiting period, adequate cover and tax benefits are few advantages of buying a health plan when young.

  1. Pay down debts

It is easier to save for retirement when you don’t have any student debt or credit card debt.


  1. Buy a house instead of paying rent

If you are living on rent, major share of your income goes towards rent.

Having your own house will give you a sense of security and reduce your expenses considerably.


Tip: You can consider buying a retirement home in some other city or your native place where prices are within your budget.

  1. Life insurance

Loss of the sole breadwinner can risk the survival of any family.


Therefore it is essential to create financial security for your family by investing in a life insurance plan.

  1. Don’t touch the money until you need it

You should avoid spending the retirement corpus so that your money can gain from the power of compounding.

Piggy Bank on beach vacation

Tip: At the time of job change, rather than withdrawing your PF balance, you should transfer it to the new employer account.

Other options of withdrawing for specific purposes such as buying or building a house, your child’s marriage, or in medical emergencies should also be avoided.

  1. Contingency fund

Your retirement fund should not be used for meeting contingencies.

Build a separate contingency fund which should help you meet expenses of at least six months.


After retirement, you can use this fund as per your needs.

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Tax saving: Section 80C

Section 80C is the most popular tax saving option. The maximum deduction allowed is of Rs 1,50,000. It includes:

  1. Employee Provident Fund (EPF)

EPF is a savings scheme for retirement for all salaried employees. You receive compounded tax-free interest on the amount.

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You and your employer contribute equally towards this provident fund. Employer’s contribution is tax exempt and your contribution is claimed in Section 80C investments. You can also increase your contribution through voluntary contributions (VPF).

  1. Public Provident Fund (PPF)

PPF is a popular long-term investment option backed by Government of India which provides tax-free returns. Interest is compounded annually and it has a maturity period of 15 years.

Piggy Bank savings

The minimum annual investment is Rs. 500 and the maximum annual investment allowed is Rs 1,50,000.

  1. Principal repayment of housing loan

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Principal repayment of loan taken for buying or constructing a residential house property is also eligible in Section 80C.

  1. Stamp duty and registration charges for house

Stamp duty, registration fees and other expenses while buying a house can be claimed as deduction under section 80C in the year of purchase of the house.

  1. Life insurance premium

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All life insurance premium payments including Unit Linked Insurance Plan (ULIPS) for self, spouse and children are eligible for tax benefits under section 80C.

  1. 5 year tax saving Fixed Deposit (FD)

fixed deposit

Tax saving Fixed Deposit (FD) with bank or post office is eligible for section 80C deduction. These deposits have a mandatory lock in period of 5 years.

  1. Tax saving mutual fund Equity Linked Saving Investments (ELSS)


Investment in Equity Linked Savings Scheme (ELSS) mutual funds is eligible for deduction under section 80C. These mutual funds have lock in period of 3 years.

  1. National Savings Certificate (NSC)

National Savings Certificate (NSC) is an investment which can be purchased from designated post office. It has a maturity period of 5 to 10 years. Interest earned is taxable and is compounded annually. However, if the accrued interest is reinvested it qualifies for deduction under Section 80C.

  1. Contribution to Sukanya Samriddhi Account


Sukanya Samriddhi Account is a special account for a girl child. Parents can deposit minimum Rs. 1000 to maximum Rs.150000 to this account. The interest earned is compounded annually and is fully exempt from tax.

  1. Tuition fees for children’s education


A tuition fee paid for any two children is eligible for deduction, which covers any school, college, university or other educational institution in India.

  1. Contribution to certain pension funds

Retirement plan

Investment in certain pension funds is eligible for deductions under section 80 C.

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