Preference Shares Explained: Types, Features, and Investment Guide
Written by Pradnya Surana
2 min read | Updated on November 20, 2025, 14:28 IST
Preference shares, as the name suggests, gives preferential treatment to its holders in two ways. Firstly, whenever the issuing company declares a dividend, preference shareholders are the first to get it. Second, in case of liquidation of the issuing company (when the issuing company is winding up) these shareholders stay ahead to receive the company's assets. So, preference shares are a unique combination of equity and debt. Equity, for it gives growth to its investors and debt because it gives that security even when the issuing company is closing its operations.
Features of preference shares
Let us dive deeper into the features of preference shares which make them favourite to certain investors,
Priority dividend payment
Preference shareholders receive fixed or variable dividend payments before any common shareholder gets them. This predictability makes them attractive for income-seeking investors.
Fixed income nature
Most preference shares pay fixed dividends based on the share's par value, similar to bonds. In March 2023, JP Morgan Chase issued $500 million preference shares which carried a fixed dividend rate of 5.75%.
Callability
For companies, they can ‘call’ (repurchase) preference shares from investors on predetermined dates and at pre decided prices.
Convertibility
Some preference shares can be converted into a specified number of common shares. This feature imparts flexibility to investors to switch to common shares if he or she wishes to.
These features of preference shares thus make a unique combination of liquidity and security.
The trade-offs of holding preference shares
Certain benefits passed on to common shareholders are forfeited to preference share holders, like,
No voting rights
Standard preference shares don't carry voting rights. Some agreements grant voting rights under specific circumstances, such as dividend payment defaults.
Limited capital appreciation
Unlike common shares, preference shares usually have limited price appreciation possibilities since their value is tied to fixed dividend payments rather than company growth.
Types of preference shares
Understanding the different types helps you choose shares aligned with your investment goals.
Cumulative preference shares
If the company skips paying dividends due to insufficient profits, the unpaid dividends accumulate. Preference share holders are paid all dividends with arrears before distributing any dividends to common shareholders.
Non cumulative preference shares
Here, skipped dividends are lost forever. If the company doesn't pay dividends in a particular year, shareholders have no claim on these lost dividends .
Participating preference shares
Along with fixed dividends, these shareholders participate in surplus profits after common shareholders receive their dividends. Here investors get ‘double benefit’, fixed dividends plus additional profit participation.
Non participating preference shares
Shareholders receive only the predetermined fixed dividend, irrespective of how profitable the company becomes. This is the most common type.
Redeemable preference shares
The company can buy back these shares at a predetermined price and date. Most preference shares issued today are redeemable, giving companies flexibility to manage their capital structure.
Irredeemable preference shares
These cannot be redeemed as long as the company's existence remains outstanding until liquidation. Indian companies can no longer issue irredeemable preference shares beyond 20 years.
Convertible preference shares
Holders can convert these into common equity shares at a predetermined ratio and time.
Non-convertible preference shares
These remain preference shares permanently and cannot be converted into equity. Their features are more like perpetual bonds.
Adjustable-rate preference shares
With these shares, dividend rate gets adjusted periodically (usually quarterly). This adjustment is based on benchmark interest rates like government securities.
How to buy preference shares
Preference shares trade on stock exchanges like regular equity shares. You can purchase them through your demat and trading account with any broker. However, not all companies issue preference shares. Even with companies that issue preference shares, they may have limited quantities available.
Steps to Purchase,
Open a demat and trading account if you do not have one
Research companies offering preference shares
Check dividend rates and other features discussed above
Place buy orders through your trading platform
Regularly check dividend payment schedules and company announcements
Final thoughts
Preference shares are a unique combination of growth, liquidity and security. Having knowledge of their types and features helps you select preference shares that match your income goals and risk appetite. Also, based on their features, you may decide if you want or do not want to invest in them. As with any investment, it is recommended to conduct thorough research on the issuing company's financial health and the specific terms of the preference shares before investing. You can consider consulting a financial advisor to determine if preference shares fit your overall investment strategy and portfolio goals.
About Author
Pradnya Surana
Sub-Editor
is an engineering and management graduate with 12 years of experience in India’s leading banks. With a natural flair for writing and a passion for all things finance, she reinvented herself as a financial writer. Her work reflects her ability to view the industry from both sides of the table, the financial service provider and the consumer. Experience in fast paced consumer facing roles adds depth, clarity and relevance to her writing.
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Upstox is a leading Indian financial services company that offers online trading and investment services in stocks, commodities, currencies, mutual funds, and more. Founded in 2009 and headquartered in Mumbai, Upstox is backed by prominent investors including Ratan Tata, Tiger Global, and Kalaari Capital. It operates under RKSV Securities and is registered with SEBI, NSE, BSE, and other regulatory bodies, ensuring secure and compliant trading experiences.