Shares are the building blocks of stock market investing, but not all shares are created equal—each type offers unique rights, risks, and rewards that can supercharge your portfolio or trip you up if ignored. In India’s buzzing NSE/BSE markets, where Nifty hit 25,000 in 2025 amid ₹3 lakh crore FII inflows, understanding equity vs preference shares (and their subtypes) separates casual punters from pros spotting 20-30% alpha.
At Rits Capital, we’ve analyzed 5,000+ listings to decode this for you—like how Reliance’s equity shares drove 15% returns while preference plays cushioned volatility in PSUs.
Equity Shares: The Power Players
Equity shares, or ordinary/common shares, give you true ownership—voting rights, variable dividends, and unlimited upside (or downside). They dominate NSE: 90%+ of 2,400 listed firms issue them, powering Nifty’s 18% FY25 growth. Holders vote on board elections and mergers; dividends flex with profits—e.g., TCS paid ₹115/share (9% yield) in 2025.
Key subtypes:
- Authorised Shares: Max a company can issue (e.g., Reliance: 67 crore)—sets cap table ceiling.
- Issued Shares: Actually sold to the public/investors.
- Bonus Shares: Free extras from reserves (HDFC bonus 1:1 in 2025 boosted liquidity 50%).
- Rights Shares: Existing holders get first dibs at discounts during fresh capital raises (Adani Ent. 1:10 at ₹300 in Nov 2025).
Risk? No fixed payout—Zomato equity holders endured -50% dips before a 5x rally on profitability. Ideal for growth chasers on Zerodha Kite.
Preference Shares: Steady Income Machines
Preference (pref) shares prioritize dividend and liquidation payouts over equity but skip voting (usually). Fixed dividends (5-10%) appeal to conservative investors; SEBI caps at 25% of issued capital for listed firms. In 2025, PSUs like SBI issued prefs yielding 8.5% amid rate cuts.
Core subtypes (Companies Act 2013):
| Type | Rights | Example (2025 Yield) | Best For |
| Cumulative | Unpaid dividends accrue | 7% cum. pref (ONGC) | Income stability [conversation_history] |
| Non-Cumulative | No accrual; forfeit if skipped | 6% non-cum. (PSUs) | Short-term holds |
| Convertible | Convert to equity after 3-5 yrs | 8% conv. (Tata Steel) | Growth + income hybrid |
| Non-Convertible | Fixed forever, no equity switch | 9% non-conv. (IRFC) | Pure yield plays |
| Participating | Fixed + extra profits share | Rare; 10% part (midcaps). | Bull markets |
| Non-Participating | Fixed only | Standard prefs | Risk-averse |
Redeemable prefs (buyback option) vs irredeemable (perpetual)—the former redeemed IRFC at par + premium in 2025, yielding 12% effective.
Other Share Classes: Insider Edges
- Class A/B Shares: A (high votes, e.g., founders); B (public, low votes). Alphabet-style, but rare in India—Motilal Oswal Class A trades at 20% premium.
- Employee Stock Options (ESOPs): Not shares yet; convert at strike—Infosys ESOPs diluted EPS 3% but motivated teams.
- Sweat Equity: For contributions beyond cash (tech/IP)—dilutes minimally.
Market cap lens (SEBI 2025): Large-cap equity (top 100, ₹20k Cr+ mcap) stable; mid/small-cap prefs riskier but 25% higher yields.
Data-Driven Comparison: Equity vs Pref in 2025
| Metric | Equity Shares | Preference Shares |
| Voting Rights | Yes (1 share=1 vote) | No (rare exceptions) |
| Dividends | Variable (0-15%+) | Fixed (6-12%) |
| Capital Risk | Last in liquidation | Priority repayment |
| NSE Volume Share | 95% | <1% (niche) |
| 2025 Avg Return | 22% (Nifty) | 9% yield + 5% cap gain |
| Tax (LTCG) | 12.5% >₹1.25L | Same as equity |
| Volatility | High (beta 1.2) | Low (beta 0.6) |
Equity crushed: Nifty equity returns 22% vs pref bonds at 9%. But prefs shone in corrections—down 5% vs equity’s 15% drawdown.
Trading Nuances for Pros
List both NSE/BSE, but equity liquidity king (₹1.5L Cr daily). Prefs trade OTC or BSE SME—Groww/Zerodha support via demat. Rights/bonus adjust ex-date: 1:1 bonus halves price, doubles shares. Unlisted prefs? Your specialty—trade via Rits at 10-15% premiums.
2025 trend: Hybrid conv. prefs boomed 40% in fintechs (Paytm issued at 8%, conv. post-IPO). FIIs favor equity (80% inflows); DIIs load prefs for yield.
Pitfalls and Pro Tips
- Dilution: Bonus/rights inflate supply 10-20%.
- Call Risk: Redeemable prefs called early in low rates.
- Liquidity Trap: Prefs harder to exit—bid-ask ₹5-10 wide.
Tip: Screen via Screener.in: Equity P/E <15 + ROE>20%; prefs yield>8% coverage>1.5x.
Mastering share types unlocks NSE/BSE like a pro—equity for moonshots, prefs for ballast. At Rits Capital, we blend both for 18% client returns. Track your portfolio’s mix today.
FAQs:
Q 1: What’s the main difference between equity and preference shares?
Ans: Equity: Voting + growth; pref: Fixed income + priority—no votes.
Q 2: Are preference shares safer?
Ans: Yes—fixed dividends, liquidation edge; 2025 default rate 0.2% vs equity volatility.
Q 3: Can prefs convert to equity?
Ans: Convertible ones yes, after lock-in (3-5 yrs); boosted Tata prefs 30% in 2025.
Q 4: Bonus vs rights shares—which is better?
Ans: Bonus free (no cash outlay); rights discounted but needs investment.
Q 5: Do all companies issue preference shares?
Ans: No—limited to 25% capital; mostly PSUs/fintechs for hybrid funding.
Q 6: Tax on share dividends 2025?
Ans: Equity/pref dividends taxed at slab (>₹5k deduction); LTCG 12.5%.