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Initial Public Offering

Initial public offering, also referred to simply as a "public offering," is the first sale of stock by a private company to the public.

IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.

In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market.

IPOs

IPOs can be a risky investment.

For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company.

The IPO can be made by 3 methods which are:-

a) Public Issue through Prospectus – raising the capital by issuing a prospectus to inform and attract the investing public.

b) Offer for Sale – offering the new securities to the investing public by the intermediary like underwriters, merchant banking etc.

c) Private Placement – selling of new securities by an intermediary to selected clients at higher price.

When a company lists its shares on a public exchange, it will almost invariably look to issue additional new shares in order to raise extra capital at the same time.
The money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors).

IPOs

An IPO, therefore, allows a company to tap a wide pool of stock market investors to provide it with large volumes of capital for future growth.
The company is never required to repay the capital, but instead the new shareholders have a right to future profits distributed by the company.

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Dividends are payments made by a company to its shareholders.

Dividends

When a company earns a profit, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders of the company as a dividend.

Paying dividends is not an expense; rather, it is the division of an asset among shareholders.

Dividends Policy

There are various forms in which the dividends can be paid, some of which are :-

• Cash

Cash dividends (most common) are those paid out in form of cheques. This is the most common method of sharing corporate profits with the shareholders of the company.

• Stock

Stock dividends are those paid out in form of additional stock shares of the issuing corporation, or other corporation. They are usually issued in proportion to shares owned.

• Property

Property dividends or dividends in ‘in kind’ are those paid out in form of assets from the issuing corporation or another corporation. They are relatively rare and most frequently are securities of other companies owned by the issuer.

• Other

Dividends can be used in structured finance. Financial assets with a known market value can be distributed as dividends.

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Bond is a debt security, similar to a debenture.
When we purchase a bond, we are lending money to a government, municipality, corporation or other entity known as the issuer.

In return for the loan, the issuer promises to pays a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it “matures,” or comes due.

Bond, like debenture, is an acknowledgement of debt issued under the seal of a company and signed by an authorized signatory.

The expression ‘Bond’ has become synonymous with the debt instruments where the rate of interest is not pre-determined. Examples of bonds are Deep Discount Bond, Zero Coupon Bond etc.

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The capital market is the market for medium and long term funds. It refers to all the organizations, institutions and instruments that provide long term funds.

The organizations and institutions which constitute the capital market include the new issue market, the stock exchange, the mutual funds, insurance companies, investment banks.

The capital market mainly focuses on meeting long term financial needs of the business sector.

Global Market In Hand

The business enterprise utilizes this market to procure finances for long term investments, such as buying plant ,machinery ,buildings, etc. funds in the capital market are raised by issuing a wide variety of securities which includes :-

• Equity shares or ownership securities
• Debentures or creditor ship securities
• Preference shares or securities having preferential claims
• Other innovative securities which are variant s securities, with new features added to provide a wider choice to investors.

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