हिंदी

Capital Market - Primary Market

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Estimated time: 11 minutes
CBSE: Class 12

Introduction

  • This market is where new securities are sold for the first time.
  • The people who invest here include banks, big financial organisations, insurance companies, mutual funds and ordinary individuals.
  • Companies use this market to collect money for starting new projects, growing or changing existing projects, and for mergers or takeovers.
CBSE: Class 12

Methods of Flotation of Securities

Offer Through Prospectus

  • Public company raises funds by inviting the public through a prospectus.
  • Prospectus is advertised; issues are underwritten and listed on a stock exchange.
  • Prospectus must follow rules of the Companies Act, Investor Protection Act and SEBI.

Offer for Sale

  • Company sells securities with the help of intermediaries.
  • Intermediaries: issuing houses and stock brokers.
  • Company sells to brokers; brokers resell to investing public, avoiding direct issue formalities.

Private Placement

  • Securities given to institutional investors and selected individuals.
  • Raises capital faster and at lower cost due to fewer formalities.

Rights Issue

  • Existing shareholders get a special right to buy new shares.
  • New shares offered in proportion to existing shareholding.

E‑IPOs

  • Capital issued to public through the stock exchange’s online system.
  • Company signs IPO agreement with stock exchange; SEBI‑registered brokers handle applications and orders.
  • Registrar provides electronic link; securities can later be listed on other stock exchanges.
CBSE: Class 12

Key Points: Primary Market

  • Primary market deals with new securities issued for the first time.
  • Main investors: banks, financial institutions, insurance companies, mutual funds and individuals.
  • Funds are raised for new projects, expansion, diversification, modification, mergers and takeovers.
  • Offer through prospectus is the most popular method for public companies in the primary market.
  • Offer for sale uses intermediaries like issuing houses and stock brokers.
  • Private placement, rights issue and E-IPOs are additional methods of flotation of securities.
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