What is meant by primary market? Explain any two methods of floating new issues in the primary market.
Primary market is a market which deals in new securities, being issued for the first time. The important function of a primary market is to facilitate the transfer of investible funds from savers to entrepreneurs, seeking to establish new enterprises or to expand existing ones through issue of securities.
There are various methods of flotation of new issues in the primary market, two of which are as follows:
(i) Offer through prospectus Under this method, a company invites 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.
(ii) Offer for sale Under this method, securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stock brokers. In this case, a company sells the-entire securities en-block at an agreed price to the intermediaries, who, in turn, resell them to the investing public.