What is meant by a ‘Primary Market’? Briefly explain the concept of ‘Initial Public Offer’.

Primary Market: Primary market is that market in which shares, debentures and other securities are sold for the first time for collecting long-term capital. This market is concerned with new issues. Therefore, the primary market is also called New Issue Market (NIM). Through the medium of this market both the newly established companies as well as the existing companies collect capital. In this market, the flow of funds is from savers to borrowers (Industries).
Initial Public Offer-IPO: It refers to the first issue of equity shares to the public. The IPO can be made through any of the following methods:

(i) Public Issue: Under this method, the company issues a prospectus and invites the general public to purchase shares or debentures.

(ii) Offer for Sale: Under this method, firstly the new securities are offered to an intermediary (generally firms of stock brokers) at a fixed price. They further resell the same to the general public at a higher price. The advantage of doing this is that the issuing company feels free from the tedious work of making a public issue.

(iii) Private Placement: Under this method, the company sells securities to the big financial institutions or brokers instead of selling them to the general public. They, in turn, sell these securities to the selected clients at a higher price. This method is preferred as it is a cheaper method of raising funds as compared to a public issue.