Redeemable shares can be withdrawn or redeemed by the issuer under certain conditions. They can be common or preferred stock and are often issued to subsidiaries or as part of executive benefit packages. The issuer retains the right to repurchase, usually triggered by an increase in share value. For investors, there is a guaranteed return, but also the risk of the share value falling.
Redeemable shares are often referred to as redeemable shares. The reason for this designation is that the issuer of the share can withdraw or redeem a redeemable share, assuming certain conditions exist. Callable shares are generally issued at a specific redemption price listed in the terms and conditions of the sale.
A redeemable share can come in the form of common stock and preferred stock. It is not unusual for a parent company to issue callable common stock to one or more of its subsidiary companies. Callable preferred shares are generally reserved for investors or as part of the corporation’s executive benefit packages. At all times, the issuer of the shares will retain the right to repurchase upon request. However, this option is generally not exercised unless the move proves to be financially rewarding to the issuer.
The most common event that can trigger a demand to repurchase callable shares has to do with the price of the shares. If the per share value of the shares increases above the guaranteed figure included in the original issue of the shares, the company may elect to redeem all or part of the outstanding shares. Once investors have been paid at the lower price per share, the company is free to offer the shares at the higher price to all interested parties. This will generate additional income for the company and often helps the business expand.
For the investor, the idea of redeemable shares is not necessarily a one-sided advantage. Because there is at least a guaranteed return on the callable shares should the issuer wish to repurchase the shares on demand, the chance of doing something with the investment is quite good. As with any investment in shares, there is always the possibility that the value of the callable shares may fall below the purchase price, but that is a risk inherent in any type of share purchase.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
