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in Grade 12 by Master (810k points)
  1. Preference shares
  2. RSA Retail Savings Bond

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1. Preference shares

Positives

  • Shareholders obtain proportional ownership in a company.

  • Investment in preference shares has a lower risk than ordinary shares as preference shareholders have preferential claims on the assets of a company at liquidation.

  • Dividends are paid out before any other shareholders receive theirs.

  • Preference shareholders receive a fixed dividend amount/percentage per year.

  • Accumulated preference shareholders may be compensated for past dividends not paid out in previous years.

  • Shareholders may also share in surplus profits that remain after all other shareholders have received their dividends.

  • Shareholders have limited liability to the debt of the company,  therefore they stand to lose what they have invested.

  • Shareholders will receive their claim on company assets after creditors have been paid, but before ordinary shareholders receive their claims when the company is liquidated.

Negatives

  • Shareholders have no voting rights at the Annual General Meeting (AGM).

  • Shareholders may receive less dividends when company profits are high as their dividends are fixed.

  • Convertible preference shares may be converted into ordinary shares, in which case preferential rights on dividends/assets are lost.

  • Non-cumulative preference shareholders have no cumulative rights on past dividends not paid out.

  • Risk may be high, as investment may be lost when companies are liquidated.

2. RSA Retail Savings Bonds 

Positives

  • Guaranteed returns as interest rate is fixed for the whole investment period.
  • Interest rates are market related.
  • Investment may be easily accessible, as cash may be withdrawn after the first twelve months, subject to penalties.
  • Low risk/Safe investment, is made with the South African Government which cannot be liquidated.
  • Retail bonds are easily/conveniently obtained electronically/from any Post Office/any Pick 'n Pay shop/directly from National Treasury.
  • No charges/costs/commissions payable on this type of investment.
  • Interest is usually higher than on fixed deposits.
  • Retail bonds are listed on the capital bond markets/on the JSE.

Negatives

  • Retail bonds cannot be ceded to banks as security on loans.
  • A minimum of R1 000 must be invested, which may be difficult for some small investors to accumulate.
  • Retail bonds are not freely transferable amongst investors.

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