Primary market is the part of capital market where issue of new securities takes place.
The primary market is also known as New Issues Market(NIM). Here, the transaction is conducted between the issuer and the buyer. In short, the primary market creates new securities and offers them to the public. The selling process of new issues in primary market is called as Underwriting and this process is done by a group of people called underwriters or security dealers. From a retail investor’s point of view, investing in the primary market is the first step towards trading in stocks and shares.
Types of issues
Capital or equity can be raised in primary market by any of the following four ways:
As the name suggests, public issue means selling securities to public at large, such as IPO. It is the most vital method to sell financial securities.
Whenever a company needs to raise supplementary equity capital, the shares have to be offered to present shareholders on a pro-rata basis, which is known as the Rights Issue.
This is about selling securities to restricted number of classy investors like frequent investors, venture capital funds, mutual funds and banks comes under Private Placement.
When a listed company issues equity shares to a selected number of investors at a price that may or may not be pertaining to the market price is known as Preferential Allotment.
Read about Secondary Markets Here