Premium Issue

Premium Issue The issue of shares at a price above the face value of a share. The sum charged above the face value is the premium. This premium is supposed to be determined by the following factors: the current book value of the share, the EPS, and the average market price over the last three years. Usually issued by successful companies whose share values are high on the stock exchange, although now more and more dark horses are appearing on the premium market. One should not rush to invest simply because a premium is charged on an issue, or by the issue, or by the size of the premium. Why the erstwhile Controller of Capital Issues allowed some of these hefty premia is perhaps the most insoluble mystery of the Indian stock market. Companies with established track record of more than five years are now allowed to make premium issues at their discretion. However, they must mention the premium the erstwhile CCI would have allowed according to his foumula.

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