What are the ways of raising funds in primary market?
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The primary market is crucial for companies seeking to raise capital for growth and expansion. Investors should carefully assess the risk and reward before investing in new securities.
Raising funds in the primary market involves the sale of new securities directly to investors. Companies or organizations typically raise capital in the primary market through the following ways: 1. Initial Public Offering (IPO): An IPO is the process where a company issues new shares to the public for the first time. This method is commonly used by companies looking to raise substantial amounts of capital for expansion or debt repayment. It allows the company to list its shares on a stock exchange and make them available to the general public. 2. Rights Issue: A rights issue is an offer to existing shareholders to buy additional shares at a discounted price, typically in proportion to their current holdings. This is often used by companies to raise capital without the need to find new investors. 3. Preferential Allotment: Under preferential allotment, a company issues shares to select investors, usually institutional investors or promoters, at a fixed price. This is a quicker and more flexible way to raise funds. 4. Private Placement: In private placement, a company sells securities to a select group of investors, such as private equity firms, venture capitalists, or accredited investors. This method allows companies to raise funds without the regulatory requirements of an IPO. 5. Public Deposits: Companies may also raise funds through public deposits by offering fixed deposits to the public at attractive interest rates. This is a short-term method used mainly by non-banking financial companies (NBFCs).
