STEP BY STEP PRACTICAL PROCESS TO BUY SHARES IN PRIMARY MARKET
A primary market is a market that deals with issuance of new securities. It is a place where corporate entities can raise long term funds from the public. In a primary market institutions can raise funds through bond issues and corporations can raise capital through the sale of new stock through an initial public offering. In the primary market funds can be raised through various issues such as
- Public issue
- Right issue
- Preferential issue
- Bonus issue
Issue that are made to the public and either be Initial Public offering (IPO) or further public offering (FPO). Both IPO and FPO can either be fresh issue of shares or offer for sale shares.
Step – 1 – Open a Demat account
Gone are the days where one used to get share certificates and buying and selling physical shares were allowed. These days, shares can be bought or sold only in dematerialized form. Dematerialization means converting your physical shares to electronic form. We need to understand some basics here. There are two depositories in India namely – Central Depository Services Ltd (CDSL) and National Securities Depository Ltd (NSDL). Each depository has many participants registered with them and they are called the Depository participants (DP). For ease and convenience you may consider them as banks. Just like you have a bank account to keep your money, you have a demat account to keep your shares. Most of the stock brokers are also Depository participants as well. So you need to open a demat account with the DP.
STEP – 2 – Application form and ASBA
You can generally find the application form of the company with any broking house or even at the street corner of a financial market hub. Those who have trading account with the brokers and trade online will have an online access to place these orders. SEBI has introduced ASBA – Application supported by blocked amount. Which means that the application money to buy the shares does not get debited from your account until the shares are issued. One you apply for the shares, a block is put on the funds which you cannot withdraw. Once the shares are issued, the amount is debited and if the shares are not issued for any reason the block is removed. So you do not have to run-around for any refunds.
Step -3 – Allotment of shares, listing and trading
Allotment of made by the company on the basis of certain rules formed by SEBI
- SEBI, ensures every retail applicant gets allotted a minimum bid lot, subject to availability of shares in aggregate
- The rest is based on the proportion of the number of shares applied
- If there is over subscription, based on the number of shares in the retail category , the bidders shall be selected on basis of draw of lots
Share are then listed on the stock exchange by the 12th day of close of issue and then trading starts. You may hold the shares or sell it as per your convenience.