Initial public offer
It refers to first time sale of securities by a company. Under this method company issues a prospectus to inform and attract general public. In prospectus company provides details about the purpose, for which funds are being raised, past financial performance of the company, background and future prospects of company. The information in the prospectus helps the public to know about the risk and earning potential of the company and accordingly they decide whether to invest or not in that company. Through IPO company can approach large number of persons and can approach public at large. Something companies involve intermediaries such as bankers, brokers and underwriters to raise capital from general public.
Under this method new securities are offered to general public but not directly by the company but by an intermediary who buys whole lot of securities from the company. Generally the intermediaries are the firms of brokers. So sale of securities takes place in two steps: first when the company issues securities to the intermediary at face value and second when intermediaries issues securities to general public at higher price to earn profit. Under this method company is saved from the formalities and complexities of issuing securities directly to public.
Under this method the securities are sold by the company to an intermediary at a fixed price and in second step intermediaries sell these securities not to general public but to selected clients at higher price. The issuing company issues prospectus to give details about its objectives, future prospects so that reputed clients prefer to buy the security from intermediary. Under this method the intermediaries issue securities to selected clients such as UTI, LIC general insurance.