Who are promoters in share market? How are promoters different from general investors? Read on as we will clear your doubts on what stock promoters are and what is their role in the share market.
First of all, stock promoters aren’t necessarily individuals, they can also be firms or organizations. The basic function of promoters in the share market is to raise capital for a given company by using various strategies.
Promoters in the share market can exist at both the IPO level and in the secondary market. A simple analogy for promoters in the stock market is the network marketing approach, where individuals become customers and then subsequent promoters or agents of a given product or service.
Stock promoters are often compensated in form of equity shares of the same firm that they promote.
There are several types of promoters in the share market:
- Penny Promoters: As the name suggests, such promoters who are involved in promoting penny stocks, usually of start-up firms. Apart from investing in such stocks, the promoter’s responsibility is also about creating awareness about the company among residents and non-residents.
- Institutional Promoters: Institutional promoters are usually the existing, long-term investors of a company who have the responsibility of influencing other serious investors. Their influencing strategies include the disclosure of data such as profit and turnover reports.
- Promoters For Government Securities: These promoters only specialize in raising funds for Government Securities. These promoters simply purchase Government Securities issues in the form of debt instruments by institutions such as RBI and then sell them off in subsequent markets to investors who do neither have a current account (CA) with RBI nor have a Subsidiary General Ledger (SGL).
So in short they have the responsibility of raising capital for equities as well as creating awareness for a certain company.
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