Companies will often include warrants as part of a new-issue offering to entice investors into buying the new security. A warrant can also increase a shareholder’s confidence in a stock, if the underlying value of the security actually does increase overtime.

There are two different types of warrants: a call warrant and a put warrant. A call warrant represents a specific number of shares that can be purchased from the issuer at a specific price, on or before a certain date. A put warrant represents a certain amount of equity that can be sold back to the issuer at a specified price, on or before a stated date.

Characteristics of a Warrant
Warrant certificates have stated particulars regarding the investment tool they represent. A holder of a warrant does not have any voting, shareholding or dividend rights. All warrants have a specified expiry date, the last day the rights of a warrant can be executed. Warrants are classified by their exercise style: an American warrant, for instance, can be exercised anytime before or on the stated expiry date, and a European warrant, on the other hand, can be carried out only on the day of expiration.
The underlying instrument the warrant represents is also stated on warrant certificates. A warrant typically corresponds to a specific number of shares. The exercise or strike price is the amount that must be paid in order to either buy the call warrant or sell the put warrant. The payment of the strike price results in a transfer of the specified amount of the underlying instrument.
The conversion ratio is the number of warrants needed in order to buy (or sell) one investment tool. Therefore, if the conversion ratio to buy stock XYZ is 3:1, this means that the holder needs three warrants in order to purchase one share. Usually, if the conversion ratio is high, the price of the share will be low, and vice versa.

Let us look at an example:
Say that XYZ shares are currently priced on the market for Rs. 150 per share. In order to purchase 1,000 shares, an investor would need Rs.1, 50,000. However, if the investor opted to buy a warrant (representing one share) that was going for Rs. 50 per warrant, with the same Rs. 1, 50,000, he or she would be in possession of 3,000 shares instead. If the share price of XYZ gains Rs. 30 per share from Rs.150, to close at Rs.180. The percentage gain would be 20%. However, with a Rs. 30 gain in the warrant, from Rs. 50 to Rs. 80, the percentage gain would be 60%.

Warrants can offer significant gains to an investor during a bull market. They can also offer some protection to an investor during a bear market. This is because as the price of an underlying share begins to drop, the warrant may not realize as much loss because the price, in relation to the actual share, is already low.

Conclusion:
Warrants can offer a smart addition to an investor’s portfolio, but due to their risky nature, warrant investors need to be attentive to market movements. This largely unused investment alternative, however, can offer the small investor the opportunity for diversity without having to compete with large, market-influencing institutions.

FEATURES OF PREFERENCE SHARES : The main features of preference share are listed below

1. Dividends: Preference shares have dividend provisions which are either cumulative or non cumulative. Most shares have the cumulative provisions which means that any dividend not paid by the company accumulates. Normally, the firm must pay these unpaid dividends are known as dividends in arrears.

2. Participating Preference Shares: Most preference shares are non-participating, meaning that the preference shareholder receives only his stated dividend and no more. The theory is that the preference shareholder has surrendered claim to the residual earnings of his company in return for the right to receive his dividend before dividends are paid to common shareholders. The participating preference shareholder receives stipulated dividends and shares additional earnings with the common shareholders. But this share is usually non-cumulative which confirms the view that preference share does have both protective and profit participating provisions.

3. Voting Rights: Preference shares do not normally confer voting rights. The basics for not following the preference shareholder to vote is that the preference shareholder is in a relatively secure position and, therefore, should have no right  to vote except in the special circumstances.

4.  Convertible: Convertible preference share means that the owner has the right to exchange a preference share for a share of equity share of the same company. As in the same case of bonds, sometimes the number of shares of equity are given. There are times when conversion is determined on the basis of par value. The holder if convertible preference shareholder usually has a stronger claim that the holder of an equity share to earnings and assets. In addition, if a company’s earnings increase, the convertible preference shares will rise in value.

5.  Par Value: Most preference shares have a par value. When it does the dividend rights and call price are usually stated in terms of the par value. However, those rights would be specified even if there were no par value. It seems therefore, as with equity shares. the preference share that has a par par value has no advantage over preference share that has no par value.