(i) Primary market is also known as the new issue market. It deals with the new securities being issued for the first time.
Two methods of issuing securities are as follows :
(a) Offer through prospectus:
- This involves inviting subscription from the public through issue of prospectus.
- A prospectus makes a direct appeal to investors to raise capital, through an advertisement in newspapers and magazines.
- Public issue involves a large number of intermediaries, such as bankers, brokers and underwriters.
(b) Offer for sale :
- Under this method, securities are not issued directly to the public but are offered for sale through intermediaries like issuing or stock brokers.
- In this case, a company sells securities at an agreed price to brokers who, in turn, resell them to the investing public.
(ii) Factors affecting fixed capital:
(a) Natural of the business:
- The type of business has a bearing upon the fixed capital requirements. For example, a trading concern needs lower investment in fixed assets compared with a manufacturing organization; since it does not require to purchase plant and machinery etc.
(b) Scale of Operations: A larger organization operating at a higher scale needs bigger plant, more space etc. and therefore, requires higher investment in fixed assets when compared with the small organization.
