What is OFS? Explained for Beginners
If you are new to the stock market, you must have come across terms like IPO, FPO, and OFS. While IPOs and FPOs are more commonly discussed, OFS (Offer for Sale) is another important method through which companies and promoters sell their shares. In this beginner-friendly guide, let’s understand what OFS is, how it works, its benefits, and how it is different from IPO and FPO.
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| OFS Explained for Beginners |
What is OFS?
OFS (Offer for Sale) is a process where the promoters of a listed company sell their shares to the public through the stock exchange platform. Unlike an IPO (Initial Public Offering), which is used to list a company for the first time, OFS is only available for companies that are already listed on the stock exchange.
OFS was introduced by SEBI (Securities and Exchange Board of India) in 2012 to make shareholding more transparent and accessible.
How Does OFS Work?
- The company announces an OFS in advance, mentioning the date and price range.
- Investors (retail, institutional, HNIs) can place their bids through their brokers during the OFS window.
- The bidding process usually lasts for one trading day.
- Shares are allocated based on demand and availability.
Who Can Participate in OFS?
OFS is open to all categories of investors, including:
- Retail Investors (small investors)
- Qualified Institutional Buyers (QIBs)
- Non-Institutional Investors (NIIs)
As per SEBI rules, at least 10% of shares in OFS are reserved for retail investors.
Advantages of OFS
- Transparency: Conducted through stock exchanges, making it fair and open.
- Quick Process: The bidding and allotment usually happen in a day.
- No Additional Compliance: Easier than IPOs as the company is already listed.
- Opportunity for Investors: Investors get a chance to buy shares directly from promoters, often at a discounted price.
Difference Between IPO, FPO, and OFS
| Feature | IPO | FPO | OFS |
|---|---|---|---|
| Full Form | Initial Public Offering | Follow-on Public Offering | Offer for Sale |
| Company Status | Unlisted companies | Already listed companies | Already listed companies |
| Purpose | First-time listing | Raise additional capital | Promoters sell existing shares |
| Duration | Several days | Several days | Usually one trading day |
Example of OFS
Suppose a company like ABC Ltd is already listed on NSE and BSE. The promoters want to reduce their stake from 60% to 55%. They can sell 5% of their shares via an Offer for Sale. Investors can buy these shares on the announced day through the stock exchange platform.
Conclusion
OFS (Offer for Sale) is a simple and transparent way for promoters of already listed companies to sell their stake to the public. For retail investors, it offers an opportunity to buy shares, sometimes at a discounted rate. Understanding the difference between IPO, FPO, and OFS will help you make smarter investment decisions in the stock market.
FAQs on OFS
1. Can retail investors apply in OFS?
Yes, retail investors can apply in OFS. At least 10% of shares are reserved for them.
2. Is OFS available for unlisted companies?
No, OFS is only available for already listed companies.
3. How long does an OFS last?
Usually, an OFS lasts for only one trading day.
4. Do companies raise new capital through OFS?
No, OFS involves promoters selling their existing shares, not raising fresh capital.
5. How is OFS different from IPO?
IPO is for first-time listing of a company, whereas OFS is for promoters of already listed companies selling shares.
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