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How is it different from buying shares in normal market

In certain situations, companies may find themselves in need of additional funds even after conducting an initial public offering (IPO). To fulfil this requirement, companies often turn to the Offer for Sale (OFS) method. However, it is important to note that purchasing shares through the OFS platform differs significantly from buying shares in a typical market.

In this article, we will delve into the distinctions between these two approaches to enhance our understanding of OFS and its unique characteristics.

What is OFS?

Introduced by SEBI in 2012, Offer for Sale (OFS) is a method utilised by company promoters to decrease their stake. Through this approach, promoters sell their shares on the stock exchange.

The primary objective of OFS is to assist publicly traded companies in meeting minimum public shareholding requirements. It has gained immense popularity among listed companies, both private and state-owned, as it aligns with SEBI Orders. Additionally, the government has also employed OFS to sell its shares to public sector companies.

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How are Shares Bought in a Normal Market?

The process of buying shares in the normal market is quite different from the OFS. In normal markets, the shares can be bought in two ways:

Primary market
Secondary market

Shares are acquired through the primary market via the Initial Public Offer (IPO). When a privately held company requires funds for expansion, it launches an IPO, inviting the public to subscribe to its shares. Upon allocation to the public, the company becomes publicly listed on the stock exchange.

Once listed on exchanges like NSE or BSE, individuals can freely trade these shares through stockbroking firms in what is known as the secondary market. Unlike the primary market, where new shares are offered to the public for the first time, the secondary market facilitates the buying and selling of already-listed shares.

How Does This Differ From Buying Shares Through the OFS Platform?

Buying shares in a normal market (i.e., primary market and secondary market) differs from OFS. Let’s understand the same in detail.

Base of Comparison	Offer for Sale (OFS)	Normal Market
Base of Comparison	Offer for Sale (OFS)	Primary Market	Secondary Market
Objective	An easy way for shareholders to reduce their shareholding. The amount is transferred from the public to the shareholders.	To raise funds for expansion and future plans of the company. Here, the amount is received from investors in return for equity in the company.	Investors and traders buy and sell the shares of the listed company with the objective of making profits.
Rules and Regulations	The process is very easy. The company needs to inform them about the same exchange, two days prior to the OFS. No formal paperwork is required.	An investment bank is appointed for IPO underwriting. They need to go through the preparation and filing of registration statements along with a Red Herring Prospectus with authorities.	One needs to have a demat and trading account to buy or sell shares. This will enable them to buy and sell shares through an online trading platform or by calling a broker.
Share Reserves	25% of issued shares are for insurance companies and mutual funds. On the other hand, 10% are for retail investors.	In an IPO, 35% of the shares are kept reserved for retail investors.	There are no such reserves. But at times when too much movement is noticed in the scrip, then a circuit limit is applied on the stock and trading is halted.
Time	It is active for one trading day.	It is active for 3-10 days.	You can buy and sell shares in the market hours from Mon -Fri.
Changes in Bid	Changes are allowed, but no cancellations are allowed.	You can’t change or cancel your bid.	You can change the bids in limited order.

Conclusion

In conclusion, understanding the nuances of buying shares through different market mechanisms is crucial for investors. While the Offer for Sale (OFS) method allows promoters to reduce their stake in a company, the primary market with Initial Public Offerings (IPOs) provides an opportunity for privately held companies to raise funds and become publicly listed. The secondary market enables individuals to trade already-listed shares. Each market has its own rules, objectives, and timelines, and investors should carefully analyse their options before making investment decisions.

By gaining a comprehensive understanding of these processes, investors can navigate the stock market more effectively and make informed choices. Whether participating in OFS, IPOs, or secondary market trading, proper analysis and decision-making are key to successful investing in the dynamic world of stocks and shares.