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SPEEDY Railway Book (English)

IPO - Initial Public Offering



Essential for All Upcoming Bank Exams
There are two types of public issues – 
  • Where the company and lead manager stipulate a floor price or a price band and leave it to market forces to determine the final price (price discovery through book-building process) and 
  • Where the company and lead manager fix a price (called a fixed price). 
Reservation – 
Issuer can reserve some shares for allotment on firm basis for some categories. 

Secondary Market and Its products: 
Secondary market refers to a market where security are traded after being initially offered to public in the primary market and/ or listed on the Stock Exchange. Secondary market comprises of equity market and the debt markets. The secondary market provides an efficient platform for trading of securities by the investors. For a company also the secondary equity markets serve as a monitoring and control mechanism through price information the guides management decisions. 

Equity Market: 
Equity is the common ownership interest of shareholders in a company with various kinds of equity shares as under – 
Equity Shares – 
An equity share commonly referred to as ordinary share also represents the form of fractional ownership in which a shareholder as a fractional owner undertake the maximum entrepreneurial risk associated with a business venture. The members of the company have voting rights. A company may issue such shares with differential rights as to voting, payment of dividend etc. 
Right Shares – 
The issue of new securities to existing shareholders in the ratio of their existing holding of shares. 
Bonus Shares – 
Shares issued by the companies to their shareholders free of cost by capitalization of accumulated reserves from the profits earned in the earlier years. 
Cumulative Preference Shares – 
A type of preference shares on which dividend accumulates if remains unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares. 
Participating Preference Shares – 
The right of certain preference shareholders to participate in profits after a specified fixed dividend contracted for is paid. Above a particular specified level participation right is attached with the quantum of dividend paid on the equity shares over. 
Cumulative Convertible Preference Shares – 
A type of preference share where the dividend payable on the same accumulates, if not paid. These shares will be converted into Equity Capital of the company after a certain date. 

Debt Market: 
Debentures – 
It is an instrument issued by a company bearing a fixed rate payable half yearly on specified dates. Its principal amount repayable on particular date on release. Debentures are normally secured or charged against the asset of the company in favour of debenture holder. 
Bond – 
A negotiable certificate evidencing indebtedness. It is normally unsecured issued by a company, municipally or government agency. A bond investor lends money to the issuer and in exchange the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payment over the life of the loan. The various types of Bonds are follows – 
Convertible Bond – 
A bond giving the investor the option to convert the bond into equity at a fixed conversion price. 
Zero Coupon Bond – 
Bond issued at a discount and repaid at the face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment at the maturity of the bond.
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