Preference shares and Equity shares are crucial for investors who wish to diversify their portfolios and maximize their investment returns. Each type of share offers distinct rights, benefits, and risks, tailored to different investor preferences and financial goals.

What are Preference Shares?

Preference shares, also known as preferred stocks, are shares of a company's stock with dividends that are paid to shareholders before common stock dividends are issued. If the company enters bankruptcy, preference shareholders are entitled to be paid from company assets before common shareholders.

Features of Preference Shares:

1. Fixed Dividend: Preference shares typically offer a fixed dividend rate, providing a stable income stream.
2. Priority on Assets: In the event of liquidation, preference shareholders have priority over equity shareholders in asset distribution.
3. Redemption Feature: These shares may come with an option for the company to buy them back at a future date.

Examples of Preference Shares:

1. Cumulative preference shares, which accumulate dividends if not paid annually.
2. Redeemable preference shares, which can be bought back by the issuing company.

What are Equity Shares?

Equity shares, commonly referred to as common shares, represent ownership in a company. Shareholders of equity shares are typically entitled to vote on corporate matters and receive dividends that are variable and issued after preference shareholders are paid.

Features of Equity Shares:

1. Voting Rights: Equity shareholders have the right to vote on major corporate decisions.
2. Variable Dividends: Dividends are based on the profitability of the company and decisions by the board.
3. Capital Appreciation: These shares often have potential for significant price appreciation in the stock market.

Examples of Equity Shares:

1. Shares traded on major stock exchanges like the New York Stock Exchange or the NASDAQ.
2. Shares issued by companies ranging from large-cap stocks to startup enterprises.

Difference Between Preference Shares and Equity Shares: 

Basis	Preference Shares	Equity Shares
Dividend Type	Fixed dividends, offering predictable returns.	Variable dividends, dependent on company's profits.
Voting Rights	Generally do not have voting rights.	Have voting rights on corporate matters.
Priority in Liquidation	Higher priority in asset distribution upon liquidation.	Lower priority compared to preference shareholders.
Risk	Generally lower risk due to fixed dividends and priority in liquidation.	Higher risk, but potential for greater capital gains.
Return Potential	Limited to the fixed dividend rate.	Unlimited, depends on company growth and profitability.
Redemption	Can be redeemable at the company’s discretion.	Not redeemable.