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Methods of Marketing Securities
The following methods and techniques may be adopted by a company in order to approach the investors


Postini Alternative

(1) Public Issue by Prospectus.
This is the most popular method of raising funds. The company issues a prospectus inviting applications direct from the public or through some intermediaries such as brokers, investment house and underwriters etc. for tasking up the new shares or debentures. Legally, a public limited company cannot raise share capital from the public without issuing prospectus. Sometimes, company imposes a restriction of the minimum number of shares to be subscribed for, in order to save the cost of issue.

Evaluation. This is the cheapest way of disposing of securities and has an approach to a wider section of public. But at the same time, it bears the risk of being unsuccessful. There is another danger in case of a new company that it may not get even the minimum subscription.

(2) Offer for Sale.
This is another method usually adopted in the case of large issue. Under this method, the company does not issue prospectus but it sales or agrees to sell the securities to the issue houses or to the financial institutions, at fixed price. Such issue houses or financial institutions in turn issue a statement like prospectus called 'offer for sale' as an advertisement the newspapers for inviting applications from the public at a price generally higher than the purchase price. The difference of purchases price and issue price is their remuneration for managing the issue.

Evaluation. This method besides having all advantages of the issue of Prospectus methods ha one more advantage. It relieves the company from the administrative work and the cost of the new issue and at the same time, it ensures that the whole issue is sold even at a time when conditions in capital market are unfavorable. But this method has certain disadvantages too. Under this method, the issue houses generally issue the shares at a price higher than the purchase price and the difference goes to be issue houses and not to the company.

(3) Placement Method
Under this method, the securities are sold to the issue house or broker or financial institutions privately and not by issuing prospectus in order to place them with their clients and associates. Alternatively, they act as an agent for selling the securities to their clients privately. It is called private placing.

The method is quite cheap because cost of issue is negligible but the shares under this method are available only to a selected group of investors.

(4) Right Issue
Such issue are generally offered by the company for cash to the existing equity shareholders only. There is a statutory provision under Companies Act to offer new issue by an existing company first to the existing shareholders in the ratio of their holdings, and if existing shareholders refuse to subscribe for their obligations, only then such shares can be issued to the public. It is also known as 'Privileged Subscription'.

(5) Bonus Issue
When a company has lack of funds to pay off dividends, but possesses sufficient reserves and accumulated balance of profits, it generally capitalizes such profits and reserves by issuing new shares to the existing shareholders in addition to the cash dividend. There are certain restrictions, imposed by the Companies Act and the guidelines for the issue of bonus shares issue by the Finance Ministry which are to be followed by a company for such issue.

(6) Subscription by Inside Coteries
Under this method, a certain percentage of new issue is kept in reserve for subscription by inside coteries such as workers, directors etc.

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