Study the following case / situation and express your opinion.
(1) Joy ltd. Company is a newly incorporated company. It wants to raise capital for the first time by issuing equity shares.
a. Should it go to primary market or secondary market to issue its shares ?
b. Should it offer its shares through public offer or rights issue ?
c. What will be the issue of Equity shares by Joy Ltd. Co. called as, IPO or FPO ?
(a) Joy Ltd. Company wants to raise capital for the first time by issuing equity shares. Therefore, it should go to primary market wherein new securities are sold by the companies for the very first time to the Investors, to raise funds.
(b) It should offer Its shares through public offer. This is because, Joy Ltd Is a newly incorporated company and want to raise capital. So, in that case public offer is best suited.
(c) The Issue of equity shares by Joy Ltd. Co. Is called as IPO. Initial Public Offer or IPO, as the name suggests, is the fresh Issue of equity shares to the general public by an unlisted company for the very first time.
(2) Mr. X is the CFO ( Chief Financial Officer ) of PQR Co. Ltd. which is a reputed company in the field of construction business. Often Mr. X has to decide on investing
surplus funds of the company for short durations. And at times, he also has to decide the sources from where he can raise funds for short durations.
a. Assume on behalf of the company Mr. X has Rs. 5 lakhs and wants to invest for a short period. Should he buy Equity shares or Certificate of Deposit ?
b. The company has surplus funds and wants to invest it. However, he needs the money back in 4 months, so should he invest in Treasury Bills or Government Securities ?
c. Can the company issue Certificate of Deposit ?
(a) Ms. Mr. X should buy Certificate of Deposit. This is because, Mr. X wants to Invest for a short period, for this Certificate of Deposit Is best suited. Whereas, Equity Shares is best suited for long term Investment.
(b) Ans. If he needs the money back In 4 months, he should Invest In Treasury Bills. At present, the Government of India Issues three types of treasury bills through auctions, namely – 91 days, 182 – days and 364 – days treasury bills.
(c) No, the company cannot Issue Certificate of Deposit. This Is because, Certificate of Deposit can only be Issued by Commercial Bank and Financial Institutions.