The primary market is that part of the capital market

Capital market

A capital market is a market for securities , where business enterprises and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets...

s that deals with the issuance of new securities

Security (finance)

A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...

. Companies, governments or public sector institutions can obtain funding

Funding

Funding is the act of providing resources, usually in form of money , or other values such as effort or time , for a project, a person, a business or any other private or public institutions...

 through the sale of a new stock

Stock

The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

 or bond

Bond (finance)

In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

 issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting

Underwriting

Underwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products . The name derives from the Lloyd's of London insurance market...

. In the case of a new stock issue, this sale is an initial public offering

Initial public offering

An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...

 (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus

Prospectus (finance)

In finance, a prospectus is a document that describes a financial security for potential buyers. A prospectus commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company's business, financial statements,...

. Primary markets create long term instruments through which corporate entities borrow from capital market.

Features of primary markets are:

• This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).
• In a primary issue, the securities are issued by the company directly to investors.
• The company receives the money and issues new security certificates to the investors.
• Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.
• The primary market performs the crucial function of facilitating capital formation in the economy.
• The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."
• The financial assets sold can only be redeemed by the original holder.

Methods of issuing securities in the primary market are:

• Initial public offering
  Initial public offering
  An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
  
  ;
• Rights issue
  Rights issue
  A rights issue is an issue of additional shares by a company to raise capital under a seasoned equity offering. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from...
  
  (for existing companies);
• Preferential issue.