Question

What are the advantages and disadvantages of the Primary Market?

Please list at least 10 advantages and disadvantages.

Answer 1

Advantages of primary market :

1. It provides opportunity for new investors to start new enterprises

2. Existing companies will be in a position to expand their activities

3. Promotion of partnership firm into Public Limited companies or merger of companies or facilitates buy-back of shares

4. Company successfully raised funds at low costs

5. Manipulation of price is smaller so invest in primary market is safer

6.No need of paying any brokerage or transaction fees or any tax such as service tax, stamp duty and STT

7.No need to time the market the investors get the share at the same price.

8. Securities issued in the primary market can be sold immediately in the secondary market. This means high liquidity.

9. It mobilizes savings

10. It’s a vehicle for direct foreign investment

11.It’s an excellent method of diversification to reduce risk

12.There are no market fluctuations in the primary market

dis advantages of primary market :

1. Over subscription ,the shares are alloted in proportionate basis, small investors hardly get any allotment

2. Money is locked and shares are alloted in after a few days. whereas in case of secondary market the shares are credited within three working days

3. Primary research projects can be quite expensive

4. Primary research is a time-consuming process as it involves deep research

5.In this share are invested at fix price

6.Lack of enough resource