{"id":18335,"date":"2022-11-10T17:12:45","date_gmt":"2022-11-10T11:42:45","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=18335"},"modified":"2022-11-10T17:12:45","modified_gmt":"2022-11-10T11:42:45","slug":"difference-between-preference-shares-and-equity-shares","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/","title":{"rendered":"Difference Between Preference Shares and Equity Shares"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_40 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" area-label=\"ez-toc-toggle-icon-1\"><label for=\"item-69e1b05a56856\" aria-label=\"Table of Content\"><span style=\"display: flex;align-items: center;width: 35px;height: 30px;justify-content: center;direction:ltr;\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/label><input  type=\"checkbox\" id=\"item-69e1b05a56856\"><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/#Equity_Shares\" title=\"Equity Shares\">Equity Shares<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/#Features_of_Equity_Shares\" title=\"Features of Equity Shares\">Features of Equity Shares<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/#Preference_Shares\" title=\"Preference Shares\">Preference Shares<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/#Features_of_Preference_Shares\" title=\"Features of Preference Shares\">Features of Preference Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/#Difference_Between_Equity_Shares_and_Preference_Shares\" title=\"Difference Between Equity Shares and Preference Shares\">Difference Between Equity Shares and Preference Shares<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/#Dividend\" title=\"Dividend\">Dividend<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/#Frequently_Asked_Questions_FAQs\" title=\"Frequently Asked Questions (FAQs)\">Frequently Asked Questions (FAQs)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/#What_are_the_different_types_of_equity_shares\" title=\"What are the different types of equity shares?\">What are the different types of equity shares?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/#What_are_the_different_types_of_preference_shares\" title=\"What are the different types of preference shares?\">What are the different types of preference shares?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/#What_are_the_major_differences_between_equity_and_preference_shares\" title=\"What are the major differences between equity and preference shares?\">What are the major differences between equity and preference shares?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/#Interested_in_how_we_think_about_the_markets\" title=\"Interested in how we think about the markets?\">Interested in how we think about the markets?<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p><span style=\"font-weight: 400;\">Equity shares indicate a company&#8217;s ownership. While preference shares have preferential access to the company&#8217;s assets and income. The main distinction between equity and preference shares is also in regard to voting rights, ownership of the company&#8217;s assets, and dividends. Equity shareholders have the right to vote, while preference shareholders have a right to the company&#8217;s assets and profits before equity shareholders do.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/kuvera.in\/fixed-deposit\/all\"><img loading=\"lazy\" class=\"aligncenter wp-image-14483 size-large\" src=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/08\/fd-blog-01-1-1024x334.jpg\" sizes=\"(max-width: 640px) 100vw, 640px\" srcset=\"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/08\/fd-blog-01-1-1024x334.jpg 1024w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/08\/fd-blog-01-1-300x98.jpg 300w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/08\/fd-blog-01-1-768x250.jpg 768w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/08\/fd-blog-01-1-150x49.jpg 150w, https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2022\/08\/fd-blog-01-1.jpg 1080w\" alt=\"kuvera-fixed-deposit-online\" width=\"640\" height=\"209\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<h2 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Equity_Shares\"><\/span>Equity Shares<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">A company dilutes its ownership by issuing <a href=\"https:\/\/kuvera.in\/blog\/equity-shares-types-features-and-benefits\/\">equity shares<\/a> in order to raise money. To acquire partial ownership of the company, investors might purchase equity share units. Investors will become shareholders in the company and contribute to its total capital by purchasing equity shares. Equity shareholders are the company&#8217;s owners to the extent of the number of shares they own.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Through equity investing, investors benefit from capital appreciation and dividends.\u00a0 Equity owners receive financial benefits as well as voting rights in key company decisions. Equity shares are a popular investment option for many investors. Equity shares represent a fractional stake in the company. Equity stockholders are therefore regarded as part of the ownership. Through an <a href=\"https:\/\/kuvera.in\/blog\/everything-to-know-about-ipos-in-india\/\">initial public offering\u00a0 (IPO)<\/a>, equity shares are first made available to the public. Equity shares trade on the <a href=\"https:\/\/kuvera.in\/stocks\/listing\/all\">stock market<\/a> after being listed.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Equity shareholders receive the profits a company makes. The majority of well-known, large-cap corporations give their shareholders dividends and bonuses. The face value or book value of an equity share represents its value. The price of a company&#8217;s shares will generally increase as more individuals purchase them. While prices will decrease if more individuals sell, The prices are set by supply and demand when the shares begin trading on the exchange, though. Investors want to invest in a firm if they believe that its growth prospects are favourable so that they can benefit from capital growth. In a similar vein, investors would seek to sell their holdings.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Features_of_Equity_Shares\"><\/span>Features of Equity Shares<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Some of the features of equity shares are as follows:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Permanent Shares:<\/strong> Equity shares are permanent by nature. Shares are a company&#8217;s long-term assets. and only get returned when the company winds up.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Significant Returns:<\/strong> Equity shares have the potential to provide stockholders with sizeable returns. However, these are high-risk investments. Equity shares are therefore very volatile. Price changes can be abrupt and are influenced by a variety of internal and external factors. Therefore, only investors with sufficient risk tolerance levels may consider investing in these.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Dividends:<\/strong> Profits from a company are divided among equity shareholders. In other words, a company can use its yearly profits to pay dividends to its shareholders. A company is not required to pay out dividends, though. A company can decide not to pay dividends to its shareholders if it doesn&#8217;t generate enough cash flow or earn good profits.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Voting Rights:<\/strong> Most equity stockholders have voting rights. This enables them to decide who will manage the company. Selecting capable management helps the company increase its yearly turnover. Investors may therefore see an increase in their average dividend income.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Additional Profits:<\/strong> Equity shareholders are eligible for additional profits a company makes. It, in turn, increases the wealth of the investor.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Liquidity:<\/strong> Equity shares generally have a high level of liquidity. The shares are traded on stock markets. The share is therefore available for purchase and sale at any moment during trading hours. Therefore, one need not be concerned about selling their stock.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Limited Liability:<\/strong> Losses a company makes doesn\u2019t affect the ordinary shareholders. In other words, the shareholders are not responsible for the debt obligations of the company. The stock prices dropping is the only effect. The return on investment for a shareholder will be impacted by this.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Preference_Shares\"><\/span>Preference Shares<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">When it comes to sharing in the company&#8217;s profits, preference shareholders get special treatment. They are therefore a good choice for investors looking for consistent payouts. Due to their sheer variety and alternatives, these shares are attractive to a broad range of investors.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\"><a href=\"https:\/\/kuvera.in\/blog\/preference-shares\/\">Preference shares<\/a>, or preferred stock, represent ownership in a company. Shareholders who hold preference shares have preference over common shareholders for assets and profits. In addition, in the event of bankruptcy, preferred shareholders gain priority over common shareholders in receiving the company&#8217;s assets. A company generally issues preference shares to raise money. This becomes part of the preference share capital. Dividends are paid to preference shareholders before equity stockholders. There are several preference shares that are qualified to receive dividends in arrears. Furthermore, converting these shares to equity shares is simple.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Preference shareholders do not have voting rights like equity shareholders while having the first claim to the company&#8217;s earnings. These shares are preferred by many long-term investors seeking consistent income because the dividends are higher than those received by equity shareholders.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Features_of_Preference_Shares\"><\/span>Features of Preference Shares<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The following are a few key features:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Preference:<\/strong> Preference shareholders have advantages over common shareholders, as the term implies. They are given priority in the company&#8217;s distribution of dividends.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Voting Rights:<\/strong> Unlike equity shareholders, preference shareholders do not have voting rights.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Dividends Pay-outs:<\/strong> Dividends are paid to preference shareholders on specific dates.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Conversion:<\/strong> These shares are easily convertible to equity shares. After a certain date, some shares may be converted to common stock. While the conversion of some shares requires prior authorization and consent from the board of directors.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Liquidation:<\/strong> Preference shareholders are entitled to the company&#8217;s assets in the event of bankruptcy or liquidation.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Callability:<\/strong> On specific dates, the company may repurchase the preferred stock.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Difference_Between_Equity_Shares_and_Preference_Shares\"><\/span>Difference Between Equity Shares and Preference Shares<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<table style=\"width: 100%;\" border=\"1.5\">\n<tbody>\n<tr>\n<td><b>Parameter<\/b><\/td>\n<td><b>Equity Share<\/b><\/td>\n<td><b>Preference Share\u00a0<\/b><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Definition<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Equity shares represent a company&#8217;s ownership.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Shareholders with a preference have a claim to the company&#8217;s assets and profits.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Dividend payout<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Payments to equity owners are paid only after dividends to preference shareholders.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">The priority for dividend payments goes to preference shareholders.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Rate of dividend<\/span><\/td>\n<td><span style=\"font-weight: 400;\">The rate varies based on earnings.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">The rate of the dividend is fixed.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Bonus shares<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Equity shareholders are eligible to receive bonus shares against their existing holdings.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Preference shareholders do not receive any bonus shares against their holdings.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Capital repayment<\/span><\/td>\n<td><span style=\"font-weight: 400;\">It is repaid at the end.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">It is repaid before equity shares<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Voting rights<\/span><\/td>\n<td><span style=\"font-weight: 400;\">The shares have voting rights.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Voting rights are absent from preferential shares.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Role in management<\/span><\/td>\n<td><span style=\"font-weight: 400;\">An equity share comes with the power to participate in the company\u2019s management.\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Preference share does not extend management rights.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Convertibility<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Equity shares cannot be converted.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Preference shares can be converted to equity shares<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Arrears of Dividend<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Equity shareholders do not receive arrears of dividends.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Certain types of preference shareholders are eligible for arrears of dividends.<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Types<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Ordinary shares, bonus shares, rights shares, sweat equity, and employee stock options.<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Convertible, Non-Convertible, Redeemable,\u00a0 Irredeemable, Participating, Non-Participating, Cumulative, Non-Cumulative, Preference Share with a Callable Option and Adjustable Preference Shares<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<h3 style=\"color: black; font-size: 20px;\"><span class=\"ez-toc-section\" id=\"Dividend\"><\/span>Dividend<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Dividends are the amounts distributed to a company&#8217;s shareholders. Companies utilize it as a method of distributing their profits to their shareholders. Dividends are paid to shareholders by mature companies with steady earnings over the past few years. Along with that, consistent dividend payments boost investor trust in the company. Furthermore, these companies generally have higher share prices. It is distributed in the form of additional stock or cash per share. Dividends are also taxed in India.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Investors generally get dividend payments from established companies that have generated consistent profits over many years. They do this to draw in investors and raise the stock&#8217;s value. Companies also distribute dividends to investors to reassure them of their financial stability.<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Companies distribute dividends because investors view them as a favourable indicator of management&#8217;s objectives. Regular dividend payments frequently boost investors&#8217; confidence. It conveys to them information about the company&#8217;s potential for the future. Such companies are frequently chosen by investors seeking a steady income. Consequently, the demand for that stock may rise. Consequently, this also raises the company&#8217;s share price.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Preference shares and equity are two popular investment options on the market. However, because of their distinct distinctions, the two are favoured by various investors with various financial objectives.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions_FAQs\"><\/span>Frequently Asked Questions (FAQs)<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"What_are_the_different_types_of_equity_shares\"><\/span>What are the different types of equity shares?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">In order to raise money, businesses issue these shares to the public. These funds are used for the expansion of a\u00a0 company. Equity shares are a long-term source of funding for companies because they are not redeemable. The corporation retains ownership of the shares throughout and distributes them in the case of a wind-up. Equity shareholders are actually a company&#8217;s risk bearers because they are entitled to the residual shares following liquidation. In actuality, it is also the root of the distinction between equity share and preference share. In addition to having the ability to vote, equity shares also give their owners the right to claim profits and company assets. The following are a few types of equity shares:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Authorized share capital:<\/strong> It is the maximum limit of capital that a company can use.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Issued capital: <\/strong>This represents the total number of shares that the company has issued to its shareholders.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Subscribed share capital:<\/strong> Amount of shares subscribed by the shareholders<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Paid-up capital:<\/strong>\u00a0It is a part of subscribed capital, which includes the actual paid-up amount by shareholders.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Right shares:<\/strong> This share comes with various privileges that are connected to company shares. These shares are being issued to safeguard the interests of current shareholders.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Bonus shares:<\/strong> Shares that are issued to shareholders in form of dividends are bonus shares<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Sweat equity shares:<\/strong> Sweat equity shares are shares that are offered to reward employees or directors for their work.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"What_are_the_different_types_of_preference_shares\"><\/span>What are the different types of preference shares?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The capital that a company raises through the issuance of preference shares is termed preference share capital. In addition to a fixed dividend rate, these shares also have a preferential right to profits and assets following liquidation.Following are the different types of preference shares:<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Convertible preference shares:<\/strong> Convertible preference shareholders can convert their preferred stocks to common stocks. These shares are chosen by investors who want to gain from rising common share prices as well as preferred dividends. As a result, there are two benefits: assured profits from preferred dividends and the chance to increase gains as the price of common shares increases. According to the memorandum, this conversion is permitted within a specific time frame.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Non-convertible preference shares:<\/strong> Non-convertible preference shareholders are not permitted to convert their shares into equity stocks.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Redeemable preference shares:<\/strong> Shares that are redeemable allow the company the option to repurchase them from shareholders at a certain time or with prior notice. The stock may be bought back by the company for internal purposes. Such a repurchase has a specified price.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Irredeemable preference shares:<\/strong> Shares that are irredeemable can only be redeemed when the company goes into liquidation or winds up its operations.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Participating preference shares:<\/strong> In addition to the preference dividend, participating preference shareholders also receive the additional dividend. In other words, the company give participating shareholders a bonus dividend. Typically, the additional rate is fixed. These shareholders also have claims to the company&#8217;s excess assets during a winding down or liquidation.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Non-participating preference shares:<\/strong> Non-participating preference shareholders receive only set dividends and are not entitled to surplus profits. The extra profits go to the common stockholders.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Cumulative preference shares:<\/strong> The ability to receive dividends in arrears are provided by cumulative shares. In other words, a company&#8217;s financial situation may occasionally make it impossible for it to distribute dividends to its stockholders. Common shareholders cannot receive dividends until preference stockholders are compensated. The company decides to pay cumulative dividends the following year in such a situation. The cumulative preferred stockholders are sometimes granted interest earned by stockholders on arrear dividends.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Non-cumulative preference shares:<\/strong> Non-cumulative preference stockholders are ineligible for arrears dividends. They are only qualified for dividends from the current year\u2019s profit.\u00a0 In other words, shareholders cannot make a claim for unpaid dividends in the future if a company loses money or decides not to pay dividends in a given year. Therefore, there will be no dividend paid to stockholders for that year.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Preference share with a callable option:<\/strong> The company that offers callable option shares has the right to call in or buy back the stocks at a certain price on a specific date. The prospectus contains information about the call price, the deadline by which shares may be called, and the call premium.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Adjustable preference shares:<\/strong> Dividend rates for adjustable preference shareholders are dynamic. The rate is based on the market&#8217;s current interest rates. As a result, the dividend rates are volatile.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li aria-level=\"1\">\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"What_are_the_major_differences_between_equity_and_preference_shares\"><\/span>What are the major differences between equity and preference shares?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Major differences between equity and preference shares\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Preference shares can be redeemed after a specific time period while equity shares cannot.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Equity shares have voting rights in the company, whereas preference shareholders have preferential rights.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Preference shareholders have preference over equity shareholders in the event that a company is closed when it comes to the distribution of capital and profits.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The annual dividend is paid to preference shareholders first, followed by equity owners.<\/span><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h4 style=\"color: black; font-size: 18px;\"><span class=\"ez-toc-section\" id=\"Interested_in_how_we_think_about_the_markets\"><\/span>Interested in how we think about the markets?<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>&nbsp;<\/p>\n<p>Read more: <a href=\"https:\/\/kuvera.in\/blog\/category\/zen-and-the-art-of-investing\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Zen And The Art Of Investing<\/strong><\/a><\/p>\n<p>Check out all our &#8220;Investor Education Originals&#8221; videos on Youtube and get smart about investing.<\/p>\n<p>&nbsp;<\/p>\n<p style=\"padding-left: 40px;\">\n<style>.embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; }<\/style>\n<\/p>\n<div class=\"embed-container\"><iframe src=\"https:\/\/www.youtube.com\/embed\/HAbU5Hs7Xy8\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><span data-mce-type=\"bookmark\" style=\"display: inline-block; width: 0px; overflow: hidden; line-height: 0;\" class=\"mce_SELRES_start\">\ufeff<\/span><\/iframe><\/div>\n<p>&nbsp;<\/p>\n<p>Start investing through a platform that brings goal planning and investing to your fingertips. Visit <a href=\"https:\/\/kuvera.in\/\"><strong>kuvera.in<\/strong><\/a> to discover <a href=\"https:\/\/kuvera.in\/blog\/direct-plans-better\/\"><strong>Direct Plans<\/strong><\/a> and <strong><a href=\"https:\/\/kuvera.in\/fixed-deposit\/all\">Fixed Deposits<\/a><\/strong> and <a href=\"https:\/\/kuvera.in\/user\/login\"><strong>start investing today.<\/strong><\/a><\/p>\n<p>#MutualFundSahiHai #KuveraSabseSahiHai #PersonalFinance #InvestorEducation;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Equity shares indicate a company&#8217;s ownership. While preference shares have preferential access to the company&#8217;s assets and income. The main distinction between equity and preference shares is also in regard to voting rights, ownership of the company&#8217;s assets, and dividends. Equity shareholders have the right to vote, while preference shareholders have a right to the [&#8230;]<\/p>\n<p><a class=\"btn btn-secondary understrap-read-more-link\" href=\"https:\/\/kuvera.in\/blog\/difference-between-preference-shares-and-equity-shares\/\">Read More&#8230;<\/a><\/p>\n","protected":false},"author":11,"featured_media":18337,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false},"categories":[99,679],"tags":[892,924],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Difference Between Preference Shares and Equity Shares - Kuvera<\/title>\n<meta name=\"description\" content=\"What are Equity and Preference Shares? Features of equity and preference shares. Difference between equity and preference shares. 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