Can Equity shares be redeemed?

Redemption of shares simply involves the return of an investor’s principal or initial capital that had been kept in business. Where equity shares are concerned, there is proper need to have an understanding of the situation. Can you get your money back on your shares? Yes. But, not by way of redemption. Equity shares are majorly referred to as ordinary shares or common shares. It means you get the most out of the company in terms of value, but you also take on the greatest risks. Where a company is given debts, the creditor by way of the contract must redeem his value in the company by way of debt repayment. He or she is also entitled to a predetermined rate of interest. That would be his or her only extra advantage from the company.

Also, to a preference shareholder as well, shares can be redeemed. Companies issue out redeemable preference shares to fund their business. They usually do so because of the pool of capital they probably know they can assess for contingencies such as this. Redeemable Preference Shares are usually regarded as hybrid securities because they have features available to both debt and equity. In essence, they can get their money back, and they can also get preferred dividends as well. Ownership of the shares can be based on pre-determined terms and conditions. Also, the sum to be repaid is usually a pre-determined and decided sum.

If you have equity shares, however, you get the most value out of the company. If you still need to get your money back by way of redeeming your shares, here are some ways to do so.

As an equity shareholder, you cannot get your shares back, in terms of its original value – unless you had a form of hybrid contract. This is why the risk is the highest. If your shares drop in value, you cannot get your initial value from it back. However, there are situations where a company calls back shares so as not to dilute their shareholdings. Hence, the shares can be repurchased.  You, however, would not get it at your original value – this could be either an advantage or a disadvantage depending on how the market has moved.

 

  • Sell your shares

The usual way to get cash for your equity shares is to sell them. You set the price you want to sell it at, and you offer it to the public. Again, you still cannot use the price that you paid for it at the start of the business. You have to move with the market. A good investor buys when it’s low, holds, and sells when it’s high. This is how money is made from it. If you don’t want to sell publicly, you can always sell the company by transferring your shares to another party. It is important as an investor. However, to know when to hold, and when to sell your equity shares.

Related: DEBT VS. EQUITY – WHAT’S BETTER?

Debt vs Equity
Debt vs Equity

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