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Monday, September 6, 2010

Direct investment into equity

Investor can invest directly into equity in 2 ways-

(1)Investment in primary market: Primary market deals with the new issues of stocks, bonds or mutual funds. The first sell of a company’s stocks is done through a process which is called IPO (Initial Public Offering).In the primary market securities are directly purchased from the issuer. There are no intermediaries are involved.

When a fund house goes for the public offering, the process is called NFO (New Fund Offer).

(2) Investment in secondary market: Once the securities/bonds/MF units are issued in the primary market, thereafter they are traded in the secondary market.

In the secondary market investor directly buys the stock from another investor rather than the issuer though a broker. It is also called”after market”.

Examples of secondary stock markets

NYSE (New York Stock Exchange), BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) are few well-known examples of secondary markets.

Secondary markets provide easy exit option to the investor while issuer gets the benefit of using the share capital over a longer time.

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