Variable Income Securities

Bank Deposits,Bonds,PPF,Small Savings Schemes all Fixed Income Investments because their Returns are fixed while we are investing.There are Investment Instruments available whose Returns are variable,called Variable Income Investments.Variable Income Investments Consists mainly of Market based Investments.Investing in Equities/Stocks market also come under Variable Income Comes under.Equity is defined as the ownership interest in the corporation in the form of stocks. It is an important asset class in one’s portfolio. Equity returns can be in the form of dividends or through increase in the price of shares. It is most risky as it is not permanent and also discretionary when comes to payment of dividend. Shareholders carry the reward and risk associated with ownership of enterprises. 

Rewards

Rewards associated with equities include dividends, cash dividends, capital gains, rights issue, voting rights for stockholders, right to information etc. Like any other investment, equity is also not free from risks. The common risks associated with equity include no assurance of profit with certainty, uncertainty over allotment of shares of the company, poor liquidity, and share prices may be highly volatile leading to capital loss.



Types of Stocks 

Stock is also divided into different types Like any other asset.Stock Types are

Common Stock: Normally, stocks are referred as common stocks. Majority of the 
stocks are referred to as common stock or shares that represent the ownership in the 
company. The holders of stock have the right to claim a portion of profits. Common 
stock has benefits like earning dividends and capital appreciation. However, if a 
company goes bankrupt, the common shareholders will not receive money until the 
creditors, debtors and the preferred shareholders are paid. 

Preferred Stock: Also called preference capital or preference share, it represents some degree of preference of ownership in the company. Investors are guaranteed a fixed dividend. The most advantageous feature of preferred stock is that, in the event of liquidation, the preferred shareholders are paid ahead of common shareholders. The company has the option to purchase shares from the shareholders at any time. 


Income Stock: Income stocks are those stocks, which have an elongated and prolonged record of paying high dividends. Usually, a company whose common stock is classified as income stock is considered a stable and matured company.These companies normally pay a high percentage of corporate earnings as dividends to common shareholders.They are also more likely to be sensitive to interest rate fluctuations. Income stocks are more common with those who need current cash flow from their stock investments. 

Growth Stock: Growth stocks are the stocks of those companies that have high growth and are expected to experience higher growth in operations or earnings in future. They are also called glamor stock. These growth rates are to a large extent higher than the market average. These companies usually reinvest their earnings in capital projects instead of distributing them as dividends to support their high growth rates. The price of growth stock as well as the return on this stock tends to be higher than the income stock.

Value Stock: These are the stocks of companies, which are considered undervalued 
because, they may be in an industry that is out of favor, or they may be experiencing 
management turmoil or they may be restructuring their business operations. These 
stocks tend to have lower price or earnings and price-to-book ratios than growth stocks do.Therefore, their prices are cheap compared to the prices required to be paid for growth stocks. 

Cyclical Stock: These are the stocks of companies, whose earnings follow the business cycle. Examples of cyclical industries are oil and other natural resources, steel, cement and housing, etc. These are more risky than other stocks. They are subject to changes in business cycles. The objective to invest in cyclical stocks is to purchase these stocks during the economic upturn and sell them before the economic downturn. 

Defensive Stock: The dividends of these stocks are constant and earnings are stable 
irrespective of the market. These stocks remain stable during the various phases of 
business cycle. These perform better during economic downturn and poorly during 
expansion. Defensive stocks should not be confused with defense stocks. They are also called non-cyclical stocks.


Blue-chip Stock: Stocks of well established companies are called blue-chip stocks. Their earnings are stable and even the liabilities are not widespread. Stocks of these companies are financially stable with steady-dividend paying records during both good and bad periods. These are usually the leaders within their industry. Many investors find blue-chips attractive because they are of high-quality and have relative stability.