What is a Primary Market?

A market for new issues of shares, debentures and bonds, where investors apply directly to the issuer for allotment and pay application money to the issuer’s account. The transactions in the primary market result in new capital formation.

Players in a Primary Market:

1. Issuers may be Corporations, the Government or Mutual Funds. They start the whole process of raising funds. Funds are raised through public issues, rights issues, or through private placement, and preferential allotments.

2. Instruments are the means through which issuers raise funds, such as debentures, equity shares, warrants, etc.

3. Intermediaries are those who facilitate the flow of funds from a person who has excess funds to the person who needs it. They help the issuer to raise funds by issuing securities through selected instruments. Examples of financial intermediaries are banks, investment companies, insurance companies, development financial institutions, NBFC’s, Mutual Funds, pension funds, etc.

4. Investors Invest their surplus money in securities issued by issuers. The investor may be an individual, corporate, financial institution, foreign institutional investor, etc.

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