Primary market is for new issues. And also known as new issues market. Because, it is market for fresh capital. And funds are generating in primary market. But through public issue, rights issues and private placement. However, issuers create and issue fresh securities in exchange. Moreover, they issue securities at face value or at discount. You can see functions of primary market.
What are primary market
Primary market is for security that is being issued for first time. And main players of these markets are private and public companies. Hence, that offer equity or debt based securities. Such as stocks and bonds to raise money for their operations. To understand check importance of primary market.
You can sell securities to public through an Initial Public Offering. Moreover, you can directly buy from shareholders. Probably, primary market will trade for longer period. Hence, securities are issue on exchange basis. And these securities may take variety of forms. Such as equity, debt or some hybrid instrument.
However, many companies have entered primary market. To earn profit by converting their capital. And these securities issue in domestic and international market. Therefore, companies that issue their shares are known as issuers. And this method of issuing shares to public is known as public issue. You may invest and thus become shareholder of company.
Similarly, when securities are offered to public. And its prospectus must be issued to investor with SEBI guidelines. Hence, there is no need to issue prospectus in term of private placement. You can read primary market with examples. You can check how it works in markets.
Processes of Primary market
Basically, primary markets are platform. Where you will get first opportunity to buy new security. However, group or company that issues security. To get money by selling certain amount of securities. Normally, entire process of buying involves several rules and regulations.
Initial Public Offering is one of important procedures of primary market. Therefore, through an IPO an organization announces sale at starting price. You can buy new shares only in primary market. And issuing firm collects money to its operations. But this finance used to expand business.
Therefore, before selling security on primary market. And firm must fulfill all requirements regarding exchange. Hence, after trading in primary market. But security will enter in secondary market. However, many trades happen every day. Check advantages of primary market.
Features of Primary market
You can buy securities directly on exchanges. Therefore, company receives money and issues new securities to investors. And companies will use primary market. To set up new ventures or expanding existing business. Hence, primary market performs important function. To help capital formation in economy. To know benefits of primary market.
Role of Primary Market
Primary market gives Capital information. It gives attractive to prospective investors. With this information company can raise capital at lower cost. Therefore, securities issued in primary market. Immediately you can sell securities in secondary market. Check on economic advantages of primary markets.
Many financial intermediaries invest in primary market. Therefore there is less risk if you fail in investment. So as company does not depend on single investor. You can diversify your investment to reduce overall risk. Hence, you can read all details are given in prospectus.
Methods of Issuing Securities in the Primary Market
Primary market is an important source. Because, for revenue generating for investment banks. However, there are three methods through which securities can be issued. Such as Initial Public Offer (IPO), Right Issue and preferential issue.
Initial Public Offerings
When company issue shares made by public for first time. So it is called Initial Public Offer. And this public offer may be in form of IPO. Therefore, securities are sold through issue of prospectus. On basis of their demand. Probably, company has to appoint underwriters. In order to give minimum guarantee.
Private market is one that issues new securities on exchange. However, private company can go to public by process of IPO to sale stocks. It may be new, young or an old company can decides. To be listed on an exchange and it goes to public. Check on procedure of initial public offer.
However, companies can raise equity capital with help of an IPO. Moreover, existing shareholders can also sell their shares to public. So they can sell without raising any fresh capital. IPO is very first sale of stock issued by company to public. To know IPO check list of IPO.
Process of IPO
It has to issue share application forms through brokers and underwriters. And company has to issue prospectus giving full information about company. Therefore, brokers collect orders from their clients. And broker place order with company.
However, company makes allotment of shares with help of stock exchange. Probably, you will receive share certificates. And your shares credited to your Demat account through depository. Hence, you can save time and avoids difficult procedure. You can check best IPO in market.
Rights issue is made by an existing company to its existing shareholder. Because, shares are offered to existing shareholders. To increase quantity to their current shareholding. Therefore, right issue is way to raise additional capital of company. To understand better you need to know right issue procedure.
Usually shares are offered discount to current share price. Hence, it gives you an incentive to buy new shares. However, instead of going to public. Company gives right to its existing shareholders. To donate new issued shares to existing holdings. Probably, basic idea is to raise fresh capital.
Right issue is not common practice. That corporate organization chooses. Such an issue occurs when company needs funds for business expansion. At same time, companies also use rights issue. To prevent themselves from market. Since rights issue result in higher base for organization.
Process of Right Issue
SEBI has given guidelines for issue of right share. You can see certain rules regarding right issue of share. Therefore, only listed company can make right issue. Because, right issue can be made only if share are paid fully. However, company will have to make announcement before such issue. It must be open for minimum period of 30 days. And maximum up to 60 days.
Therefore, to issue share in demat form. So company has to make an agreement with depository. Moreover, merchant banker has to fill complaints certificate with SEBI. After 21 days from offer document issue date. Hence, 90 per cent of issue must be received payment.
It is fresh issue of securities and shares by listed company. It is called as preferential issue. Because, securities are issued to set of investors. It may consist of promoters, investors, employees and such group. This is faster way for company to raise equity capital.
Preferential shares get first choice when it comes to dividend payout. Therefore Issuer Company has to obey with companies Act. Probably, companies select group of persons under section Company Act. That is neither right issue nor public issue.
Finally, you can sell equities to public. To generate lot of liquidity and capital. However, you can use for future of company. Hence, it also helps financial situation of company. So you can apply for loans.