Q.What is the Primary Market? Explain the methods of raising capital in the primary market.

A company's very first, and every subsequent, fresh issue of securities happens here — the four methods below each suit a different situation a company might find itself in.

The primary market, also called the new issue market, is the segment of the capital market in which securities are offered and sold to investors for the very first time, the issuing company receiving the sale proceeds directly.

A company may raise capital in the primary market through several methods. An Initial Public Offer (IPO) is the method by which a company not yet listed on any stock exchange offers its shares to the public for the first time, raising capital and simultaneously getting its shares listed and freely tradable. A Follow-on Public Offer (FPO) is, by contrast, an issue of additional shares by a company already listed, when it needs further capital after its shares are already trading — the essential difference from an IPO being simply that an IPO is a company's first-ever public issue, an FPO a subsequent one. A Rights Issue is an offer of new shares made by an already-listed company specifically to its own existing shareholders, in proportion to their existing holding and usually below the prevailing market price, resting on the shareholder's pre-emptive right to be offered new shares before outsiders, so that proportionate ownership is not diluted without consent. Private Placement is the allotment of securities to a specifically identified, select group of investors — typically institutions or a small number of high-net-worth individuals — rather than to the public at large; because it does not involve the wider pu …

A frequent error is treating 'IPO' and 'FPO' as interchangeable terms for any public issue — the distinguishing fact is simply whether the company was ALREADY listed beforehand. Students also sometimes describe a rights issue as open …