The capital market is divided in two different markets. These are the
primary capital market and secondary capital market. The
primary capital market is concerned with the new securities which are traded in this market. This market is used by the companies, corporations and the national governments to generate funds for different purpose.
The
primary capital markets is also called the New Issue Market or NIM. The securities which are introduced in the market are sold for first time to the general public in this market. This market is also known as the long term debt market as the money raised from this market provides long term capital.
The process of offering new issues of existing stocks to the purchasers is known as underwriting. At the same time if new stocks are introduced in the market, it is called the Initial Public Offering. The act of selling new issues in the primary capital market follows a particular process. This process requires the involvement of a syndicate of the securities dealers. The dealers who are running the process get a certain amount for as commission. The price of the security offered in the primary capital market includes the dealer,s commission also.
Again, if the issue is a primary issue, the investors get the issue directly from the company and no intermediary is needed in the process. For the purpose, the investor needs to send the exact amount of money to the respective company and after receiving the money, the particular company provides the security certificates to the investors.
The primary issues which are offered in the primary capital market provide the essential funds to the companies. These primary issues are used by the companies for the purpose of setting new businesses or to expanding the existing business. At the same time, the funds collected through the primary capital market, are also used for the modernization of the business. At the same time, the primary capital market is also involved in the process of creating capital for the respective economy.
There are three ways of offering new issues in the primary capital market. These are:
- Initial Public Offering
- Preferential Issue.
- Rights Issue (For existing Companies)
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