Primary Market:
The primary market is also known as the new issues market. It deals with new securities being issued for the first time. A company can raise capital through the primary market in the form of equity shares, preference shares, debentures, loans and deposits.
Funds raised may be for setting up new projects, expansion, diversication, etc. of existing enterprises. The investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals.
Methods of flotation:
There are various methods of floating new issues in the primary market.
They are:
a. Offer through Prospectus:
Prospectus is an invitation to the public for the subscription of shares and debentures of a company. The issues may be under written and also are required to be listed on at least one stock exchange.
b. Offer for Sale:
Under this method new securities are not offered directly to the public. Initially the entire lots of securities are sold to an intermediary at a fixed price. The intermediary sells these securities to the public at a higher price.
c. Private Placement:
Private placement is the allotment of securities by a company to institutional investors or some selected individuals. It is less expensive and saves time.
d. Rights Issue:
According to the Companies Act, if a public company wants to issue additional shares, it must first be offered to the existing shareholders, in proportion to the amount paid up on their shares. This right is known as ‘Preemptive right’ and such an issue is called right issue.
