Primary market and secondary market advantage and disadvantages
Answers
answer is Advantages of primary market or the New issue market
1. It provides opportunity for new investors to start new enterprises: Persons with technical know-how may resort to promote new ventures which are profit-oriented. The new issue market gives them an opportunity to materialize their ideas.
2. Existing companies will be in a position to expand their activities: When the existing companies find their products obsolete, they would like to venture into new areas of production for which they require additional capital. The new issue market helps them raise the required funds.
Primary market – A market where new securities are offered to the investors for the first time .
*Advantages of Primary Market are as follows :
Opportunity for new investors – The new securities market gives opportunities to promote new ventures .
Expansion of existing companies – the companies those are already existing venture in the new areas of production for which they require additional capital . Such companies also issue their shares for raising funds.
*Disadvantages of Primary market are as follows :
Reliability factor – The market is a new place for the securities so it is difficult for the investors to rely on the factors related to securities . The public interested in buying of new shares have less knowledge about the primary market .
Lack of knowledge and experience – The lack of knowledge about the securities market is an obstacle for the investors. The general public face problems regarding the securities exchange .
Secondary Market- In the secondary market the investors buy /sell securities through stock exchange .Trading of securities in stock exchange results in exchange of money and securities between investors.
*Advantages of secondary market are as follows :
Investment opportunities – the secondary market provides investors with an opportunity to save and invest at the same time . Investment in shares does not require a large amount of capital. Therefore , small businesses get a chance to invest . Mobilisation of savings – as money is being held in form of shares , they can easily mobilise funds for investments . Accumulation of long term loans and funds therefore becomes easy.
Disadvantages of Secondary market are as follows:
Political and government policies – for any market to achieve and sustain growth , political and government policies are required . But the policies should be stable to give proper guidelines sometimes these policies misguide the market situation .
Investors sentiment and thought of risk appetite- Another factor which influences the market situation is their risk appetite.