Answer the Question based on following case study.

Mr. Raj is working as finance Manager is Amaira Company. Company has a capital Base of ₹50 lacs of Equity shares of ₹100 each. Now Company wants to enter into a new project for which it requires capital of ₹40 lacs. There are two options available to him. First to invite subscription from public through issue of prospectus and second to go for long term borrowing by issuing debentures. But Issue of debentures will not be suitable as the rate of return of company is less than Interest Rate of debentures. So the final decision was to issue Equity shares.

Identify the market where securities are issued for the first time.

Primary Market

The correct answer is option (3)- Primary Market.

The market where securities are issued for the first time is the Primary Market.

The primary market is also known as the new issues market. It deals with new securities being issued for the first time. The essential 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 the issue of securities for the first time. The investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals. A company can raise capital through the primary market in the form of equity shares, preference shares, debentures, loans and deposits. Funds raised may be for setting up new projects, expansion, diversification, modernisation of existing projects, mergers and takeovers etc. Only buying of securities takes place in the primary market, securities cannot be sold there.

OTHER OPTIONS

• The secondary market is also known as the stock market or stock exchange. It is a market for the purchase and sale of existing securities. It helps existing investors to disinvest and fresh investors to enter the market. It also provides liquidity and marketability to existing securities. It also contributes to economic growth by channelising funds towards the most productive investments through the process of disinvestment and reinvestment. Securities are traded, cleared and settled within the regulatory framework prescribed by SEBI.

• The Securities and Exchange Board of India (SEBI) was established by the Government of India on 12 April 1988 as an interim administrative body to promote orderly and healthy growth of securities market and for investor protection. It was to function under the overall administrative control of the Ministry of Finance of the Government of India. The SEBI was given a statutory status on 30 January 1992 through an ordinance. The ordinance was later replaced by an Act of Parliament known as the Securities and Exchange Board of India Act, 1992.