How Can investor Buy Shares In OFS
Have you ever wondered what happens when a company's financial needs extend beyond an initial public offering (IPO)? In such cases, companies turn to Offer for Sale (OFS) as an alternative method for raising additional funds. While IPOs allow companies to sell shares to outside investors, OFS provides an opportunity for companies to meet their financial goals and for buyers to diversify their investment portfolios.
In this article, we have explored the concept of OFS in detail, shedding light on how companies utilise this approach and how investors can participate in buying OFS shares. By understanding the intricacies of OFS, investors can broaden their investment options and make informed decisions to support companies in their growth and expansion endeavours.
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How Does an Offer for Sale Work?
An Offer for Sale or OFS is when the promoters or owners of the company decided to dilute their stake portion by selling their shares on an exchange platform.
Once the shares are on the exchange platform, eligible people can make bids to purchase them. These OFS are open to the following people for purchase:
- Qualified Institutional Buyers (QIB)
- Retail Investors
- Foreign Institutional Investors (FII)
- Companies
How Can a Qualified Investor Bid for an Offer for Sale (OFS)?
To acquire the share in case of an OFS, the qualified buyers must provide a bid for the shares. The company sets a floor price, and the buyers must place the offer over and above the price. After the bids are placed for the OFS, the shares are allotted to the available buyers.
The best thing about OFS is that bidders can purchase unlimited shares. A buyer can even bid for just one share from the OFS.
How Can an Investor Apply for OFS?
If someone wants to apply for the OFS, they must apply under OFS's retail category. There is a cap for bids in this category, but investors cannot bid over Rs. 2 lakhs. The investor's bid will be considered ineligible if it exceeds this amount.
As an investor, you must also open a trading and demat account for bidding in the OFS. If you wish to operate as an offline trader or investor, you can still do so in the OFS. However, you will be required to place their bid with the help of an assigned dealer.
When Should You Invest in an Offer to Purchase?
There are two reasons why companies go to the OFS route.
- Firstly, they want to dilute their promoter's share and, secondly, to raise additional money for growth or expansion. There is no harm in either reason or a specific time for participating in the OFS activity.
- However, if you are interested in OFS, you should consider doing background checks on the company first to see if it has a good reputation for arranging funds and using them for the specified reason. Moreover, consider the company's future growth potential; it will suggest whether it is a good deal.
What are the Rules and Regulations for OFS?
As mentioned earlier, only some can participate in the OFS. Similarly, some guidelines are supposed to be followed for OFS, which are:
- Only the top 200 companies in the share market are eligible to participate in the OFS based on their market capitalization.
- All non-promoter shareholders are eligible to place their bids in OFS as long as the basic conditions are fulfilled, i.e. their share capital needs to be more than 10%.
- Any company willing to launch an offer for sale must inform the stock exchange. This should be done at least two days before the OFS date.
- The Securities and Exchange Board of India (SEBI) has mandated that every company keeps a minimum of 25% of shares blocked for insurance and mutual fund companies. Similarly, it is also a requirement of SEBI to keep at least 10% of the shares reserved for retail investors.
The Bottom Line
Launching an offer for sales is the easiest method for any company to arrange for additional funding. These funds are generally raised to expand more businesses or grow their existing business. If the company grows, the share price will eventually increase. As an investor, if you think a company has a good reputation, you can opt for an OFS.
